Retirement saving strategies

Learn how to balance retirement with other goals and make your contributions work harder.

Small changes can add up

If you're saving less than you'd like for retirement, it's time to refocus. Starting to save as early as possible can make a big difference over your working years because of the snowball effect of compound interest. This means you're earning interest on the combined total of your principal investment plus any interest you've accumulated so far.

For example, let's say you're 25 and earning $60,000 a year. Putting away 15% now has the potential to add up to $800,000 more in savings by retirement than if you had started saving a decade later.

This hypothetical example assumes the following: a starting annual gross salary of $60,000 with a salary increase of 4% (2.5% inflation + 1.5% real salary growth rate) each year; pre-tax contributions of 15% of salary annually (that 15% includes any contribution you may get from your employer) at the end of the year for 42 and 32 years, respectively; and an annual rate of return of 5.5%.

So where do you find the money? Look for small cuts in everyday spending: Try negotiating a lower rate with your utilities company, or skip one restaurant meal a week. You may not even notice these small changes but they do add up. If your 401(k) lets you set automatic increases every year, consider signing up.

Starting early has the potential to help your retirement savings


For illustrative purposes only. The ending values do not reflect taxes, fees, or inflation. If they did, amounts would be lower. Earnings and pre-tax contributions are subject to taxes when withdrawn. Distributions before age 59½ may also be subject to a 10% penalty. Contribution amounts are subject to IRS and Plan limits. Systematic investing does not ensure a profit or guarantee against a loss in a declining market. This example is for illustrative purposes only and does not represent the performance of any security. Consider your current and anticipated investment horizon when making an investment decision, as the illustration may not reflect this. The assumed rate of return used in this example is not guaranteed. Investments that have potential for 5.5% annual rate of return also come with risk of loss.

Guidelines for saving

A good rule of thumb is to have 4× your current salary saved by age 45 (and 10× your salary saved up by age 67). Here's how to get there.1

Maximize your 401(k) employer match

If your employer offers a retirement plan, make it your first priority to reach the entire match—it's basically "free" money. Companies that offer one typically offer to match your contribution dollar-for-dollar or 50 cents on the dollar, up to a certain percentage of your contribution.

Check to see whether you're currently contributing enough to get the full match and if you're not, consider adjusting your contribution amount to get that "free" money.

Aim to save 15% per year

Our rule of thumb is to try to save 15% of your pre-tax income for retirement. That includes your contributions to workplace plans and any additional IRAs, in addition to any matching or profit-sharing contributions from an employer.

Starting early, saving consistently, and investing wisely is important, as is saving in tax-advantaged retirement savings accounts such as 401(k)s, 403(b)s, or IRAs. If you're not yet able to save the full 15%, don't fret—just try to make small cuts in everyday spending. Even saving an additional 1% more has the potential to add up.

Automate your contributions

One of the easiest and most popular ways to make investing a regular habit is to set up automatic investments. We recommend you set up automated contributions to your retirement accounts that are timed with your paycheck, so you never have to think about it.

Automatic contributions make sure you prioritize retirement and spread investment risk over time.

Know where you stand for retirement by answering some brief questions. You'll find out if you are on the right track to meet your goals and what steps you should consider as you build your savings.

Balancing retirement with other goals

You can only stretch your income so far—and competing priorities can make your head spin. Here are some guidelines for how to meet multiple money goals without pulling your hair out.

Remember that time is a key ingredient in retirement saving. If you choose to save less now, you have 3 choices: save more later, work longer, or spend less in retirement—or some combination of these.

  • Tackle the critical stuff first
  • Make a list, and check it often
  • Prioritize based on your values
  • Get feedback from your partner if you’re planning for a household

How to grow your savings beyond the 401(k)

Putting money away every day—that's the first step. Let's make the next step as easy as possible: deciding where to stash your savings. Here's a guide for a few places to put your hard-earned dollars, whatever your situation, to help you prepare for a long, happy future.

Take advantage of IRA savings

You can contribute up to:
  • 2018: $5,500, 2019: $6,000 (under age 50)
  • 2018: $6,500, 2019: $7,000 (age 50 or older)

Traditional IRAs offer up-front tax breaks, if you meet certain income eligibility requirements. Earnings can grow tax-deferred, but you pay taxes on withdrawals and required minimum distributions (RMDs). Roth IRA contributions are after tax but earnings and withdrawals are free from federal tax, provided certain conditions are met, and there are no RMDs.2

Saving without a workplace account

No 401(k)? No problem. Freelancers, entrepreneurs, and small-business owners still have tax-advantaged ways to save. Alternatives to the traditional 401(k) include SEP IRA, SIMPLE IRA, or Self- Employed 401(k). You'll need to decide what you value most: maximizing contributions or ease of administration.

Making your old accounts work harder

You've got 4 basic options for an old workplace account: Keep it with your old employer, roll over the money into an IRA, roll over into a new employer's plan, or cash out. Learn about Rollover IRAs and other choices for your old 401(k) when you retire or change jobs. Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.

Next step: Choose investments for your IRA

Successful investors know that developing a plan—and sticking with it—works. Make the most of your savings with a diversified portfolio that accounts for your personal situation, tolerance for risk, and time horizon.

Ready to get started?