Articles with titles like “How Much You Should Have Saved for Retirement at Every Age” are super clickbaity and mostly end up being depressing.

Sure, it’s easy for someone who doesn’t know me to say I should have double my salary saved, but they don’t know my salary, what I’m spending, or what I want to be spending in retirement.

And frankly, neither do I.

Retirement planning isn’t one of those set-it-and-forget-it things. Saving for retirement isn’t hard, but you can’t do all the steps at once — which is great, because that would be pretty overwhelming.

Ways to Save for Retirement: 3 Common Retirement Accounts

First off, let’s not get bogged down by the terminology and acronyms associated with retirement.

There are three foundational definitions you’ll want to know to understand your retirement accounts. Everything else is supplementary.

1. 401(k)

This is a retirement plan offered by an employer. The name “401(k)” actually refers to the section of the tax code that allows your contributions to be deducted from your paycheck before taxes are taken out. If you’re an employee of public schools or certain tax-exempt organizations, your employer may offer a 403(b), which is similar to a 401(k).

Most 401(k) accounts offer mutual funds, which are composed of stocks, bond and money market investments. 

You have the choice of contributing gross income (or pre-tax income) up to $19,500 in 2020 and 2021, and depending on your workplace retirement plan, your employer may offer to match the equivalent amount up to a limit.

What does that mean? Free money! But seriously, if you make $40,000 and you contribute 5% of your pre-tax income to a 401(k), you’re saving $2,000 on your own. But if your employer offers a 3% match, that adds an extra $1,200 to your retirement account. So it makes sense to take full advantage of this option.

2. IRA

This stands for Individual Retirement Account. The most common types are traditional and Roth IRAs. Both have great tax benefits, and both offer the returns (and risks) of investing in the stock market. For 2020 and 2021, your total contributions to all of your traditional and Roth IRAs cannot be more than $6,000 (you can add a grand to that if you’re 50 or older).

Traditional IRAs are tax-deferred accounts, which means you get the tax benefits up front, but you’ll be taxed when you take the money out.

With Roth IRAs, you fund your nest egg with after-tax money. Yes, that means you don’t get the tax benefits up front, but you’ll get to withdraw that money tax-free in retirement.  

And if you’re wondering, there’s a similar post-tax contribution option in workplace retirement plans — it’s called a Roth 401(k). 

3. Taxable Account

This is a regular ol’ investment account without the tax benefits of the 401(k) and IRA. What it lacks in tax benefits, it makes up for in flexibility. Investing options like exchange-traded funds (ETF) offer lower fees to help offset some of the tax burden. 

You can open one with any company and withdraw from it no matter what your age, for any purpose with no penalties. You will, however, need to pay income tax on money you made the year it was received. 

If an Employer Does Not Offer a Retirement Plan, What Might Be Another Way to Save For Retirement?

If your employer doesn’t offer a 401(k), bring up the possibility of adding one — the financial benefits of investing your gross vs. net income can offer you substantially more investment dollars over time. If cost is an issue, companies like SaveDay offer 401(k) plans at no cost to employers and low fees for employees.  

If you’re self-employed or you don’t have a 401(k) through your employer, you’re not off the hook. There are several types of retirement accounts you can open, depending on your needs and financial goals.

If you’re on a high-deductible health insurance plan, you can contribute to a Health Savings Account, or HSA. Contributions are deducted from your paycheck before taxes are taken out, and account balances above the plan’s threshold (typically around $2,000) can be invested just like they would be in a retirement account. 

Your HSA can be used for any qualified medical expense at any time, and once you turn 65, funds can be withdrawn for any expense without penalty. So you can put the extra money you save on health care expenses toward your retirement income.

You can also consider safer options than the stock market — although with a considerably lower annual return — like a regular savings account. Even if you’re investing, a savings account can be part of your savings plan as an easy place to stash your emergency fund.

How to Calculate What You Need to Save 

Don’t stress too much about not having double your salary saved, since you’re not alone. In general, Americans aren’t very good at saving for retirement — one-quarter of non-retired American adults say they have zero retirement savings, according to a Federal Reserve 2020 report.

But how much is enough money?  

Ask yourself questions like: 

  • What is your anticipated retirement age? (Withdrawals from retirement accounts before age 59 ½ usually result in a 10% early withdrawal penalty.)
  • Where do you want to retire? 
  • Do you want to pay off your house? 
  • Do you have credit card debt, student loans and/or medical bills to pay off?
  • How frequently or far do you want to travel? 

All these things and more will impact what you need to have saved for your retirement income.

Know that your plans will change, and inflation will make the things you want to do 3% to 4% more expensive every year on average. You can also run the numbers through a retirement calculator that accounts for taxes and inflation, so you can get an idea of how much money you’ll need to save. 

Whatever you choose, it’s important to monitor your plan to ensure you’re on track for your retirement goals based on your financial situation. 

How to Save for Retirement at Every Age

You don’t have to have your entire life planned to start saving for a retirement fund. 

You actually don’t have to have anything planned or know much at all about the subject. But there is a rule you can use to monitor your savings and to gauge your progress as you figure out where you’re going.

It’s called the 4% rule. The rule states that if you can live off 4% of your current retirement savings in a one-year span, your savings will likely last for at least 30 years. So if at any time you multiply your investment savings by 0.04 and you can live off that amount for the first year of retirement, you’ve arrived!

The 4% rule isn’t set in stone; it doesn’t mean you’ll be living off that savings forever, but it’s considered a safe withdrawal rate by most professionals and is a good way to monitor your progress. We’ll give you general suggestions for retirement savings goals based on this chart, but remember, these are only guidelines as your retirement goals are based on your own needs and priorities.

How to Save for Retirement in Your 20s

The most important thing to do in your 20s is to just start.

The math doesn’t lie; you can plug $100,000 into a compound interest calculator over different time spans, and the longest span of time will always produce the highest earnings. Starting with a zero balance and using 6% as an interest rate:

    • $417 a month for 20 years will grow to $184,000.
    • $278 a month for 30 years will grow to $264,000.
    • $208 a month for 40 years will grow to $386,000.

(Here’s an explanation about how compound interest works).

Even if it’s in small amounts, you should start saving for retirement in your 20s. Make it easy on yourself by automating your savings. If your employer offers a 401(k) match, sign up to deduct from your paycheck at least as much as the company matches. 

If you don’t have a 401(k), open a Roth IRA online through a mutual fund company like Vanguard, Fidelity or Schwab and enroll in automatic contributions. Roth IRAs are amazing, but they do have income limits. It’s best to start one when you have a lower income.

And who has a lower income than someone in their 20s, amiright? 

Also, the government will literally pay you to invest when your income is low. If you’re below a certain income, the Saver’s Credit allows you to claim between 10% and 50% of your IRA or 401(k) contributions, up to $2,000 per individual. 

Savings Goal: According to the Fidelity retirement chart, by age 30 you should have saved the equivalent of one year’s salary. 

How to Save for Retirement in Your 30s

Now that you have a few years of investing under your belt, it’s time to start optimizing your retirement savings.

Your next smartest move is paying off your debt. All the interest and fees you’re paying eat away at the amount you’re able to put toward retirement. And now that you’ve probably settled in a career and are getting raises, it’s time to double down and eliminate that debt.

If you didn’t open one in your 20s, open a traditional or Roth IRA and start maxing it out. For 2020 and 2021, the annual maximum you can contribute each year if you’re under age 50 is $6,000. 

Because IRAs have a low limit and you never get those years back, start maxing out your IRA as soon as possible. The type of IRA you contribute to is up to you. 

A traditional IRA lowers your taxable income, so if you’re within $6,000 of the next-lowest tax bracket, you can use a traditional IRA to slide in there. If you’re content with your tax bracket, you might like a Roth IRA, which won’t lower your tax bracket but grows tax-free.

Savings Goal: According to the Fidelity retirement chart, by age 40 you should have saved the equivalent of three year’s salary. 

How to Save for Retirement in Your 40s

If you’re in your 40s, there’s a good chance you have kids, a house and a stable position in your company. You might start thinking about getting a new car, upgrading the kitchen or maybe getting that boat you’ve been eyeing for the past 10 years. 

Now is not the time to start giving in to lifestyle inflation. You’re at a critical time when your investment returns are ideally going to start outpacing your contributions every month, and it’s time to capitalize on that!

It’s also time to figure out what you want to spend in retirement. Now that you have perspective on life, retirement and investing, you can plan a more reasonable retirement budget and figure out how long it’ll realistically take you to get there.

If your plan includes increasing your savings rate, start working toward maxing out your 401(k). For 2020 and 2021, the maximum annual contribution you can make each year is $19,500. If you don’t have a 401(k), open a taxable account and contribute there. You can usually do it at the same place you have your IRA.

Savings Goal: According to the Fidelity retirement chart, by age 50 you should have saved the equivalent of six year’s salary. 

How to Save for Retirement in Your 50s

At age 50, you can take advantage of catch-up contributions to your 401(k) and IRA — even though you won’t need to, because you’ve been on track for decades.

For 2020 and 2021, you can put an additional $1,000 per year in your IRA and $6,500 per year in your 401(k) once you reach 50.

Annual Contribution Limits

  Under 50 50 and older
IRA $6,000 $7,000
401(k) $19,500 $26,000

It’s also time to start thinking about Social Security. The longer you wait to collect, the more you’ll get each month — the Social Security Administration has a calculator on its website to help you estimate how much you’ll receive. Look back at the 4% rule, and plan when you want to start collecting.

Finally, it’s time to get a financial adviser. Most people who try to start their retirement planning by finding a financial adviser get frustrated when they pick the wrong one, because they didn’t know what they wanted in the first place.

Now that you have a significant amount invested and an idea of what you want to do with it, it’s time to find an adviser with expertise in how to do that. They can help you optimize the final years of your contributions, protect what you already have and make a withdrawal plan that’s more accurate than the 4% rule. 

Savings Goal: According to the Fidelity retirement chart, by age 60 you should have saved the equivalent of eight year’s salary. 

Jen Smith is a former staff writer at The Penny Hoarder. 

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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