The more you sock away, the less you'll rely on the stock market to come through for you. If you're a 30-year-old saving 15% of a $75,000 salary, for example, you'll need only 5% average annual returns to end up with $1 million by retirement time. Save only 6%, though, and you'll need 9% returns.
For a secure retirement, upper-income families should save at least 15% per year—a combination of employee contributions and any employer match—according to a 2014 study from the Boston College Center for Retirement Research.
Although your employer may nudge you in that direction, it's on you to keep going. About one-half of 401(k) plans and 16% of 403(b) plans now auto-enroll employees, most commonly to make a 3% contribution. But studies have found that auto-enrolled workers tend not to raise their contributions.
And if you're a freelancer or small-business owner, you have to contend with the lack of a match and the challenge of budgeting unpredictable earnings. If you're young, you have to balance saving for retirement with immediate burdens like student debt and entry-level salaries.
Work your way up
If your savings rate is low, instantly jacking it up may be noble—but also unrealistic. If you can, sign up for an auto-escalation feature—less than half of 401(k) and 403(b) plans have one in place—which will automatically raise your contribution by a percentage point or so per year. Or just pick a date each year to do it yourself. Getting a raise? Dedicate some of that to your retirement account. As your earning power grows, you can raise your contributions—first to the usual limits, which the IRS adjusts for inflation, then using catch-up contributions, which are additional amounts you can put in, usually starting at age 50.
If you're launching a business with a handful of employees, a Simple IRA can be an ideal starter retirement plan, says Michael Cuneo, a financial adviser in Plainview, N.Y. You, the boss, can save up to $12,500 annually for yourself; you're required to offer employees a 3% match on their salary (or just contribute 2% of their pay to them outright). In contrast, if you open a SEP-IRA, you can put away as much as 25% of your salary, up to $53,000—but you would also have to give employees the same percentage of their salary.
Freelancers don't have an employer handling automatic payroll deductions. So if that's you, set up regular transfers from your checking account through the financial institution where you hold your SEP-IRA or solo 401(k). That way your account will grow without extra effort on your part.
Does a fluctuating income make you hesitate to commit money? Don't delay deposits until the last minute. A 2014 study byVanguard found that people who waited until year-end to make IRA contributions ended up, on average, with $15,500 less after 30 years, vs. those who invested early on. So starting in January, contribute a small amount each month or each quarter—enough to add up to half the total you think you'll be able to put in that year, says Marguerita Cheng, a financial planner in Rockville, Md. By starting early in the year, you'll benefit from extra compounding.
Go beyond your limits
Once you've hit the contribution limit on your workplace plan, use the power of automatic transfers to stow additional money in an IRA or a taxable account. Run a side business? "You could conceivably max out more than one plan," says Jeffrey Levine, a CPA with Ed Slott and Co. Say, for example, you're under 50 and earn $100,000 at your fulltime job, plus $35,000 from an unrelated one-person business. You can save not only $18,000 this year in your primary job's 403(b), before any match, but also up to $6,505 of your side income in a SEP-IRA—25% of earnings after accounting for self-employment tax and other adjustments.
Or let's say you're a full-time sole proprietor netting $100,000. You can save up to about $18,600 in a SEP-IRA. But switch to a solo 401(k) in this case, and you can save about $36,600. To see how much you can put away, try Vanguard's plan contribution calculator.
Part One: These Low-Cost Strategies Can Save Your Retirement
Part Two: Two Easy Ways to Get Just the Right Mix of Stocks and Bonds
Part Four: The Right Way to Rollover Your Retirement Accounts
Chart: Your Retirement Plan Options at a Glance