Best Ways to Save for Retirement

Retirement looms large over most Americans, even though 28% of non-retirees had no retirement savings in 2022, and 31% thought that their retirement savings were not on track for success, according to the Federal Reserve.

Americans put off saving for retirement for a number of reasons, according to a 2023 BankRate survey. The most important is financial: problems such as unemployment, student debt, lack of income, and inflation make setting money aside for retirement difficult to impossible for many Americans, especially younger ones. Other reasons include poor spending habits and not knowing where to start.

No matter the reason, the smart thing to do is address the problem. Empower's team of experts can help you meet your retirement goals. Once you get started, you can begin to build your savings muscle and enjoy watching your retirement savings grow.

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6 tips to save for retirement

All successful plans start with clear objectives. Below are six tips to help you start putting money away for the years when you’re no longer earning income.

1. Set your retirement goals

In retirement, you’ll still need to prepare for fixed and discretionary expenses. Among the former are medical bills, which usually get higher as you age; transportation costs, food and shelter, taxes, and insurance. The latter can include various leisure pursuits, including restaurants, hobbies, sports, performance arts, travel, gifts, and more.

The necessities come first, but life without enjoyable pursuits isn’t something anyone wants, so you should plan to cover both. It’s up to you to decide what the balance is.

2. Begin today

The earlier you start saving, the better off you’ll be. For example, according to this IRA calculator, if at age 30 you begin putting $5,000 per year into an individual retirement account (IRA) and earn 5% per year, you’ll wind up with $603,999 at age 70. If you start at age 50, you’ll only get to $165,330.

Saving for many years allows you to maximize the benefits of compound interest, which is accumulated on your investment principal and any previous interest earned. It’s a major income accelerator. There are other steps you can take, including searching for higher yield investments and increasing your regular contribution amount.

3. Select the right investments

If you have the option, always invest in your company’s 401(k) plan. You can do this yourself or have an expert help you do it. A hands-on approach can yield the highest reward as long as you (or whoever is helping you) are knowledgeable enough to make investment decisions.

If your 401(k) is managed by company officers, and you don’t get a choice in the investments, then you’ll want to pay close attention to the next tip.

4. Max out your 401(k) and open more retirement accounts

The beauty of a 401(k) is that it often offers matching contributions from your employer. This is, in effect, free money, and you should always be sure to meet whatever terms are required in order to take advantage of it.

There are contribution limits ($23,000 for 2024, with a $7,500 catch-up contribution for people 50 and over), but even if you save the maximum allowed by the Internal Revenue Service (IRS), you can still contribute more to your overall retirement savings.

How? By opening more retirement accounts, for example, a traditional or Roth IRA. Here are our recommended Roth IRA accounts, for example.

These also have contribution limits ($7,000 for 2024 with an additional catch-up amount of $1,000 if you’re over 50). If you’re self-employed or run a business, a SEP-IRA is a valuable investment vehicle. It, too, has contribution limits (the lesser of 25% of the employee’s compensation or $69,000 in 2024). The IRS offers a complete list of retirement plans on its website.

5. Automate your savings

Setting up recurring automatic transfers into your retirement accounts is standard practice for employer-sponsored plans. You can also do this for accounts you’ve opened on your own. Note that many money-saving apps, such as Simplifi and Rakuten, offer automated features.

6. Regularly review your account terms

Examine your retirement accounts at least once a year and decide whether you can afford to put away more. Perhaps you got a raise or gave up an expensive hobby or habit. If so, consider putting some of that money, perhaps as much as half, into a retirement plan account.

If you can’t increase your savings, at least remain consistent with your existing contributions. It will serve you well, despite a jumpy market or career setback.

How much money will you need to retire?

This question yields a different answer for everyone. The Center for Retirement Research at Boston College’s 2023 National Retirement Risk Index reported that nearly half of all U.S. households risk not having enough money to maintain their living standards in retirement. This needn’t be you.

The AARP suggests that you should save 10 times your income to have a livable retirement. For example, if you earn $100,000 a year, you’ll need $1 million by the time you leave your final job to maintain your lifestyle.

Here is a retirement income calculator to help you determine what you may need.

Understanding retirement accounts: Roth IRA vs. traditional IRA vs. 401(k)

IRAs, both traditional and Roth, are retirement accounts that you set up yourself, whereas an employer sets up a 401(k), and you opt whether or not to participate. The savings that you deposit in any of them during a calendar year can reduce your taxable income, though the IRS does set contribution limits.

A traditional IRA is a tax-advantaged personal savings plan in which the contributions are tax deductible and distributions are taxed, whereas a Roth is a tax-advantaged personal savings plan in which the contributions aren’t deductible but qualified distributions are tax-free.

You may set up an IRA through a bank or other financial institution, a life insurance company, a mutual fund, or a stockbroker.

A 401(k) plan is an employer-sponsored account that is part of a qualified profit-sharing plan. It allows you to contribute a portion of your wages to the account, with a possible matching contribution coming from your employer. You can set up a 401(k) either when you begin employment or later.

If you leave a company, you can no longer contribute to the plan, but you have several options. You may choose to keep the funds with your former employer, close the account and roll over the sum into another tax-free account (whether a 401(k) or an IRA), or close it and take a lump-sum payment. If you take a cash payment, you will owe taxes in the calendar year in which you take it.

How to maximize savings on a budget

Personal finance software programs can help you create and manage a budget, plan for retirement, and track investments. Quicken can also help you with managing a property, while PayPal introduces and facilitates cryptocurrency investing. A number of financial enterprises also offer savings plans that can help you meet your expenses.

Cut down on expenses

Be honest with yourself. You can lower your expenses if you look hard at your spending and cut out the fat.

For example, do you spend a lot of money going to sporting events, concerts, or eating out? Do you have several subscriptions to online streaming sites? It’s amazing how quickly they can add up. Are you paying interest on credit card balances that you carry from month to month?

Cut out what you don’t need and look for lower-cost solutions to things you do. Money-saving apps such as Rocket Money, which keeps track of your bills and their due dates and your subscriptions. It will automatically cancel subscriptions that are no longer being used.

Make use of tools (automatic payments, budget apps)

There are lots of tools, including free ones, to help you manage your money and everyday expenses. For example, automating your bill payments can ensure you avoid late fees and save time. Other apps an assist with budgeting, tracking accounts and spending, and monitoring progress toward financial goals.

Get a side hustle

Most people have useful talents or skills they can market, whether it’s fixing computers, doing makeup for weddings or other special events, or working as a transcriber or translator. If you’re a good driver, you can work for Lyft or Uber or deliver meals for Grubhub or DoorDash.

Almost anyone can sign up to participate in focus groups or conduct surveys. Be imaginative, there are many ways for you to set up a side hustle.

Find the right savings account

With so many banks competing to offer the best rates on your savings deposits, it is easy but not less important to carefully study which savings account to select. While some banks offer high yield savings rates, the caveat could be in a higher minimum deposit required. On the same note, high interest rates on CD accounts and money market accounts could require the consumer to pay a higher than expected amount to be able to open the account and/or earn the APY.

How to save when you hit retirement age

Saving is a lifelong pursuit and should begin in childhood. The most important thing is to make it a habit. Once you’re retired, some expenses, such as professional clothing, commuting costs, and business-related meals, will vanish. Others, such as medical costs, travel expenses, and leisure activities, will likely rise. Revise your budget so you can put your money toward the items and services you need.

TIME Stamp: Start saving early and keep it steady

Saving for a comfortable retirement requires planning and forethought. The best strategy is to start early, increase your savings rate over time, and always stay the course, no matter what’s happening in your life or with the financial markets. Your golden years should be just that, golden, not stressful.

Frequently asked questions (FAQs)

What is the fastest way to save for retirement?

The fastest way to save for retirement is to start today and take advantage of compound interest. Compound interest will grow your money, but it takes time to work its magic, which is why starting early is so important. Another option is to increase your savings rate. The more you contribute each month, the faster you’ll reach your retirement goal.

What is the $ 1,000-a-month rule for retirement?

The $1,000-a-month rule, which was promulgated by Wes Moss, an Atlanta-based certified financial planner and financial educator, says that you need at least $240,000 saved for every $1,000 per month you want to have in income during retirement. When retired, you withdraw 5% of the sum each year, or $12,000, which gives you $1,000 a month for that year.

How much do you really need to save for retirement?

Russell Gaiser, a certified financial planner with the advisory firm The Financial Guys, told CNBC.com that putting 15% of your gross household income into a retirement account while avoiding high-interest debt, such as credit cards or payday loans, should keep you on track. Fidelity Investments advises the following: “Aim to save at least one times your salary by 30, three times by 40, six times by 50, eight times by 60, and 10 times by 67.”