How To Save for Retirement

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It’s enticing to think of retirement as the ultimate beach destination where the vacation never ends. Unfortunately for many people, retiring comfortably is as insecure as a child’s sand castle at high tide.

Americans historically have fallen short of their retirement goals for reasons that go beyond procrastination (but often begin there) and jeopardize their plans to maintain the lifestyle they grew accustomed to during their working years.

According to the National Retirement Risk Index, half of working households are in the danger zone when it comes to maintaining their standard of living upon retirement.

If you’ve fallen behind in saving and investing for retirement or worry you’ll outlive your money, there are strategies and tools available to help those who have the benefit of time on their side and even those who need to play catch-up.

Whichever category fits you, there is one step everyone can take to improve your chances of meeting your retirement goals, according to Eliza Arnold, Co-Founder and CEO of, a leading retirement savings platform.

“Limit debt before retirement,” Arnold said. “Entering retirement with significant debt can undermine savings.”

How Much Money Will You Need to Retire?

How much you will need to save for retirement depends on many factors beyond how long you can reasonably expect to live.

It depends on your health and the level and kind of saving you’ve done. Another factor is whether you see a retirement full of travel and resort living or simply see your golden years as an extension of the same modest life you’ve lived, just with a lot more time to sip a margarita on the back deck.

While circumstances greatly vary from retiree to retiree, there is one broad calculation that can help determine how much money you’ll need to retire – the 25x rule.

Calculating a year’s worth of projected expenses in retirement and multiplying by 25 can give you a ballpark number on how much money you’ll need once you stop working. But it’s a big ballpark.

“It’s a good starting point,” Arnold said. “It suggests you’ll need 25 times your first year’s retirement expenses. However, personal circumstances, inflation, and market returns can affect its accuracy.”

Comparing Retirement Account Options

Saving for retirement can be like that home project you’ve been putting off. Once you get started, it’s often not as daunting as it seemed, especially when you get more familiar with the tools at your disposal.

There are tried and true retirement account options that individuals can access. Some even offer tax benefits.


You need earned income and an employer who offers a plan to be eligible for a 401(k). The benefits of investing straight from your paycheck, before  taxes and before you see your take-home pay, can’t be overstated.

There are certain guidelines and limits when putting money in a 401(k) but the advantages greatly outweigh any drawbacks.

  • Contribution limits: The limit for contributions in 2023 is $22,500. Employees over the age of 50 can contribute an additional $7,500. Depending on how early you get started, If you can contribute half that on a yearly basis, you’re making a dent in saving for retirement.
  • Employer match: Nothing in life is free, right? Well, employer matches in 401(k) plans amount to free money. The more you can put into your 401(k) (tax-free, remember) the more an employer match adds up, even if it’s a 25% match on the low end.
  • Tax treatment: If you make $75,000 a year and put $10,000 in your 401(k), you’re only being taxed on $65,000 and the account grows on a tax-deferred basis. You’ll be taxed when you withdraw it, ideally at a lower tax rate because you’re retired. In the case of a Roth 401(k), the contributions are taxed as you make them. Withdrawals then go untaxed.
  • Eligibility: If your employer offers a plan, you’re eligible. There are no income limits.
  • Investment availability: One drawback to a 401(k) is that investment options might be limited compared to other kinds of investments since many employers are averse to including higher-risk options.
  • Required minimum distributions: In a traditional 401(k) you must make mandatory minimum withdrawals beginning at age 73 and pay taxes on those amounts. Beginning in 2024, the Roth 401(k) will not carry a required minimum distribution after age 73.

Traditional IRA

Saving money in your 401(k) is a great option if your employer offers a plan. If not, a traditional individual retirement account (IRA) provides some of the same tax-deferred benefits.

  • Contribution limits: $6,500 per year in 2023. If you’re 50 and older, the contribution limit is $7,500.
  • Employer match: None.
  • Tax treatment: With a traditional IRA you can deduct your contribution from your income taxes. Growth is not taxed until you withdraw the money.
  • Earned income is a prerequisite: While there’s no maximum income certain factors may result in your tax deductibility being phased out beyond a certain income threshold – $73,000 in 2023.
  • Investment availability: While investing via a 401(k) may be limited to a few dozen mutual funds, investment options with an IRA are much more diverse and include stocks, bonds, CDs and more.
  • Required minimum distributions: Same as with a 401(k).

Roth IRA

While a traditional IRA allows you to save money tax-deferred, the Roth IRA is a way to invest money after taxes. That money then grows and can be withdrawn after age 59 ½ tax free.

  • Contribution limits: The same as a traditional IRA.
  • Employer match: None.
  • Tax treatment: Any Roth IRA contributions and earnings can be withdrawn tax-free after age 59 ½ if the account has been open at least five years. Until then, contributions can be withdrawn tax-free at any point, though earnings on those contributions are taxable and subject to a 10% early withdrawal penalty.
  • Earned income is a prerequisite: Individuals must have a modified adjusted gross income of less than $138,000 in order to make a full contribution. For married couples it’s $228,000.
  • Investment availability: The same as a traditional IRA in that it offers more diverse options than a 401(k).
  • Required minimum distributions: Does not apply to a Roth IRA.

6 Steps To Saving for Retirement

Unless you’ve inherited a fortune or hit the lottery, saving for a comfortable retirement is the result of discipline and planning. So, be disciplined and plan away.

1. Calculate Your Retirement Goal

Now’s the time to take stock of your retirement savings, the number of years you have until age 67 (when Social Security is most likely to kick in for many people) and your annual expenses.

Those expenses will likely increase on an annual basis due to cost of living but your expenses in retirement – commuting costs and retirement contributions for instance – should decrease when you finally put your feet up. Use the 25x guideline or consult your friendly financial advisor or nonprofit credit counselor to reach a reasonable number for your retirement goal.

2. Start Saving for Retirement Today

If Nike hadn’t already copyrighted “Just Do It,” it would be the consensus slogan of financial advisors everywhere. The only thing better than an employer matching your contribution is the magic of compound interest. Aim to save 10%-15% of your income and watch it grow.

3. Contribute to Your 401(k)

The easiest way to save is when you forget you’re even doing it. Money withdrawn and invested in a 401(k) before you see your paycheck is absolutely the best way to build your account. It’s the next best thing to free money.

4. Employer 401(k) Contributions

If you’re fortunate to have a plan where your employer matches some portion of your contribution up to 3% or 5% of your salary, taking full advantage of that plan is the best thing you can do. Your older self will raise a glass to you at every vacation tiki bar.

5. Max Out Your IRA

The best approach to max out your 401(k) is if your employer offers a contribution match. If not, check the limits for IRA contributions, where your investment options are more varied, and contribute as much as allowed.

6. Return to your 401(k)

A 401(k) is a good way to save even if your employer doesn’t make a matching contribution. If that’s the case (and it was for me for two decades of my working life) once you’ve maxed out your IRA contributions, you can then return to your 401(k) plan and invest more there.

Retirement for Self-Employed/Non-Traditional Workers

Not everybody has a 401(k) plan with an employer match. In fact, not everyone has an employer.

If you’re self-employed or do freelance or temp work, you can still reach your retirement goals using savings plans designed specifically for non-traditional workers:

The Solo 401(k): This allows you to fund a retirement account with pre-tax dollars and, just as with an employer 401(k), those contributions can grow tax-free until withdrawal. Because you can contribute to a solo 401(k) as both employer and employee, the plan may have higher contribution limits. Just remember, it’s restricted to self-employed account holders who have no employees other than a spouse.

SEP IRA: This plan allows a business owner with no or few employees, to put away 10 times the amount of a traditional IRA – up to $66,000 in 2023. One drawback is that those over the age of 50 can’t make the same catch-up contributions available to similarly aged account holders of traditional IRAs and 401(ks).

SIMPLE IRA: This IRA plan is set up by small business owners to benefit both themselves and employees. Unlike traditional IRA contributions that are made by individuals only, employers and employees can make SIMPLE IRA contributions. The limit for 2023 is $15,500.

Maximizing Your Retirement Savings

The old saying that “time is money” is indisputable when it comes to saving for retirement. The best way to maximize your retirement savings is to start as early as possible and take advantage of the available tools and opportunities.

Make Extra Contributions

If your employer is offering a 50% match up to 5% of your salary, contribute the max even if it hurts a little. (It’ll hurt less as time goes on.) Also, if you’re in the enviable position where you receive occasional bonuses for a job well done, put the bonus into an IRA. OK, at least half of it.

Automate Your Savings

Any pain related to saving diminishes when the money automatically goes into a retirement account. You almost forget you saved that $250 or $500 a month when you automate your deposit.

Set it up and forget about it. The forgetting isn’t as hard as it might seem, according to Robert Johnson, CEO of Economic Index Associates and Professor of Finance at Creighton University, who says people being creatures of habit can sometimes work to their advantage.

“It is exceedingly difficult for many people to imagine their future self and give up that vacation or new car today in lieu of having money to retire on in the distant future,” Johnson said. “People should try and automate as many financial decisions as they can. One must make saving money a habit. The biggest advantage of automatic plans is the behavioral underpinnings of the plans.

“If we are enrolled in an automatic savings plan, inertia and the inherent laziness of people tend to work in our favor. That is, once enrolled in an automatic savings plan, people tend to stay enrolled.”

Reduce Your Spending

A one-size fits all strategy, whether you’re saving for a car or retirement or pretty much anything, is making a budget that not only helps you save for a rainy day but also provides for a lot of sunny days in retirement.

Take stock of everything you spend in a typical month and then analyze those expenses yourself or consult with a financial planner or nonprofit credit counselor for ways to reduce spending.

It might be raising a deductible (and lowering a premium) on an insurance policy you haven’t made a claim against in 20 years. It may be taking your lunch to work one week a month or taking a thermos instead of buying a $6 iced coffee on a daily basis.

“Opting for generic brands over name-brand products is generally a cost-effective decision, resulting in savings of about 20-25% based on a Consumer Reports study,” Natalie Warb, financial expert at CouponBirds, said. “This is advantageous in terms of both quality and affordability for daily needs.”

Delay Social Security Benefits.

Don’t take early benefits if at all possible. Waiting until full retirement age – or even better waiting until age 70 – can greatly increase your payment once you do begin collecting.

Can you count on Social Security payments in retirement? Yes, but know there’s a risk in relying too heavily on it.

“A few years ago, including your expected Social Security income in your retirement planning would have been an emphatic “yes,” said Kelly Gilbert, fiduciary investment advisor at EFG Financial in Grand Rapids, Mich. “Today, not as much. Flaws in the Social Security fund are the politicians. It may never get fixed and because of that I recommend planning for 50% of what you would expect, and only after age 70.”

“As longevity increases, we may certainly see changes in the program,” Johnson said. “Retirement ages might be raised. Benefits may be reduced. But, despite the current political climate, I believe Social Security will exist 30 to 40 years from today.”

Start Thinking About Retirement Savings Today

A penny earned is a penny and a half saved in an employer match 401(k) but that doesn’t come close to accounting for the benefit of compound interest over years of saving and investing in your retirement.

“Albert Einstein said that “compound interest is the greatest mathematical discovery of all time,” Johnson said. “Time is the greatest ally of the investor because of the “magic” of compound interest.”

If you couldn’t or didn’t start early, OK, then start today. Not as easy as it sounds for sure, but that’s no reason to procrastinate.

If you’re having trouble saving for retirement, especially if debt is sabotaging your best intentions, seek credit counseling for help. A 30-minute interview with an InCharge Debt Solutions credit counselor can help you create an affordable budget, develop a plan to regain control of your finances and give you a chance at the retirement lifestyle you’ve worked so hard to maintain.

About The Author

Robert Shaw

After a 45-year career in journalism, Robert's focus is helping consumers cope with personal finance issues. Finding solutions to paying off credit card debt, mortgage payments and that darn student loan, is far more fulfilling than explaining why the Cleveland Browns can't win (It's the quarterback!!). Robert wrote about the Browns and all Cleveland sports as a columnist at the Plain Dealer before transitioning to television sports commentary at WKYC. Now, his passion is helping people navigate their personal finances.


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