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Retirement is a dream for many working people. Leaving the workforce gives you time to do some of the things you’ve always wanted, like traveling or taking up a new hobby. But, you’ll need a steady source of income to accomplish this, especially when you consider that Social Security probably won’t be enough to maintain your desired lifestyle.
Unless you’re incredibly wealthy, you’ll have to plan carefully and save for your retirement. How much you’ll need to set aside to retire comfortably depends entirely on several factors, such as when you want to retire, your desired lifestyle, and your health. We’ve laid out a few retirement savings strategies from some financial experts to help get you on track.
Key Takeaways
- Retirement savings is the money you’re saving and growing to fund your retirement through employer-sponsored plans, IRAs, annuities, pensions, and savings accounts.
- Some factors that can affect your retirement savings are the age at which you want to retire, your desired lifestyle, and your health.
- Ensure you save a percentage of your salary based on your age.
- Experts suggest saving early and consistently, automating your savings, and catching up if you fall behind.
Setting Retirement Savings Goals
Retirement savings is any money you invest and set aside to fund your retirement. You can accomplish this using accounts like:
- Employer-sponsored plans (ESPs), such as a 401(k) or 403(b)
- Individual retirement accounts (IRAs), including traditional and Roth IRAs
- Annuities
- Pension plans
Other accounts and investments, such as savings and money market accounts, mutual funds and exchange-traded funds (ETFs) held in brokerage accounts, and certificates of deposit (CDs), can complement your retirement savings. Consider using different accounts to take advantage of their benefits (like an employer match for your 401(k) and high yields on a savings account. Regardless of the account(s), your retirement savings goals should never waver. Knowing how you want to spend your retirement can help you set your goals.
“A good target is 10 to 12 times your final salary or enough to replace 70% to 80% of your pre-retirement income each year,” according to Taylor Kovar, the founder and chief executive officer (CEO) of 11 Financial in Lufkin, Texas. Kovar says how you want to live out your retirement will affect your savings strategy. “Someone planning to travel the world will need more than someone with a simple, low-cost retirement.”
As much as 28% of working Americans did not have any retirement savings, according to a 2022 report from the Federal Reserve. Of those who did save for retirement, only 31% said they were on track to meet their retirement goals.
Factors Influencing Retirement Savings Needs
How much you need to save for retirement depends entirely on several factors, including when you want to retire, your health, and the lifestyle you intend to lead after leaving the workforce.
Age of Retirement
The age at which you retire is entirely up to you. The average retirement age varies by state, ranging from 61 in Alaska and West Virginia to 67 in the District of Columbia. But, the ideal retirement age for most Americans is 63, according to a survey from MassMutual. Some people leave the workforce entirely, while others continue working part-time after they retire.
The Social Security Administration (SSA) will begin paying your retirement benefits as early as 62, but it will be less than if you waited until later to claim them. For most people, the full retirement age (FRA) is 66 or 67, depending on your birth year. Remember that delaying your benefits beyond 70 can get you more than 100% of your retirement age benefits.
Desired Lifestyle in Retirement
Ask yourself how you plan to live and what you want to do when you reach that milestone. Your goals may include traveling and/or taking up a new hobby. You may also want to own a vacation home, be debt-free, and/or leave a legacy for your loved ones after your death. On the other hand, you may simply want to maintain the lifestyle you already lead. The goals you set can help you understand how much you need to save.
Your Health
Your health also plays an important role in how you save for retirement, according to Ryan Perry, certified financial planner (CFP) and accredited investment fiduciary (AIF)Â with Falcon Wealth in Ontario, California. That’s because it directly impacts your bottom line during retirement.
“If you are quite healthy with a family history of longevity, it is best to plan for a long retirement,” Perry told Investopedia in an email. Your healthcare spending will probably be significantly lower if you’re healthy, so you may be able to allocate more of your money elsewhere.
Other Considerations
While retirement age, lifestyle, and health may affect how you save, you should consider inflation and investment returns. You should also take Social Security expectations into account. The fund is expected to pay 100% of benefits up to 2033, after which its reserves will pay 79% of scheduled benefits.
But that’s not all, according to Kovar. “Where you live and whether you’re carrying debt into retirement also make a huge difference,” he said.
Age-Based Savings Milestones
Your age plays a big role in how much you save before you retire. The earlier you start, the better off you’ll be in the long run. The general rule, according to Kovar and Perry, is to set aside a certain percentage of your salary based on your age. The table below highlights the general benchmark for savings by age:
| Â Age | Â Annual Salary |
|---|---|
| By 30 | 1x annual salary |
| By 40 | 3x annual salary |
| By 50 | 6x annual salary |
| By 60 | 8x annual salary |
| By 67 | 10x annual salary |
“Keep in mind this does not factor in pensions and other savings vehicles,” Perry said. “That’s why it is best to consult with a professional to see where you are at rather than relying on a ‘rule of thumb’ guideline.”
Strategies to Achieve Retirement Savings Goals
Saving for retirement doesn’t have to be difficult, especially if you choose and stick to the right strategies. According to Perry, prioritize long-term goals over short-term wants and have a plan for every dollar you save. “What is it for? Think about what each dollar is trying to accomplish and stick to your plan,” he suggested.
Start early and save consistently. You have more time to save and recover from market volatility when you are younger. Another benefit to starting early is that your earnings will earn interest because of compounding. Put simply, the interest you earn will also earn interest, which grows your savings even more.
Max out your contributions and take advantage of employer matches if they’re available. For 2025, you can save as much as:
- $23,500 in a 401(k) with an additional $7,500 if you are 50 or older
- $7,000 in an IRA with an additional $1,000 if you are 50 or older
The types of investments you choose can also help you reach your goals. Aside from investments with employer matches, Kovar said he advises his clients to consider alternative assets like real estate, private equity, and business investments. Diversifying your investments can “provide solid returns while offering more flexibility than traditional stock-based retirement accounts,” he said.
Consider automating your savings through payroll deductions and automatic savings plans. Doing so can help you save before you even consider spending your money. Additionally, be sure to catch up if you fall behind. The best way to do that, Perry said, is to save more if you start later or need to catch up.
The Bottom Line
Knowing when you want to retire and how you want to spend your time after leaving the workforce can help determine how much you’ll have to save. You can reach your savings goals if you start early, save consistently, and don’t give up if you fall behind. If you aren’t sure of how or where to start, a financial professional can help you create a plan and stay on track.
