As people live longer and healthier lives, the average age of retirement is gradually rising. This means it’s increasingly important to have a solid retirement savings strategy in place to ensure you’ll have the money to support yourself in your golden years.
There are many different ways to save for retirement, and the best retirement saving strategies for you will depend on your circumstances and goals. However, there are some general principles and useful tips that can help you create a solid and secure retirement fund.
11 Retirement Saving Strategies to Grow Your Nest Egg
No matter your age or income level, it’s never too late to start saving for retirement—and it doesn’t have to be as complicated as it may seem. Even with no retirement savings at 65, there are some easy and painless ways to put away money for your retirement fund without making a huge dent in your budget.
Below, find 12 tips for saving for retirement to get you on the right track.
#1 Automate Your Contributions
Let’s face it—no matter how motivated you are to save, you’re probably going to sit down every month and calculate your retirement planning, wondering “how long will my savings last in retirement?” You want to win this race like the tortoise: slow and steady.
Whatever accounts you establish—whether through work or independently—set them up to make automatic monthly deposits. This way, rather than having to cough up a new cost each month, you can simply subtract your chosen amount before calculating your monthly income.
#2 Take Advantage of Employer Matching
If you’re not contributing the full amount matched by an employer, you’re leaving money on the table. Many businesses match employee contributions to 401k or other retirement savings plans in one of two ways:
- Up to a percentage of salary
- To a dollar amount per month or year
If you’re not sure about yours, or whether you’re fully taking advantage of it based on your current salary, check in with your HR department or benefits hotline. If you’re wondering how to catch up on retirement savings in your 40s, employer matching could be a great place to start.
#3 Establish a SEP IRA
If you’re self-employed, set up a SEP IRA. You’ll be able to invest tax-free and contribute more than you’re allowed under either a traditional or Roth IRA.1
Working for the man? You can still take advantage of a SEP IRA by setting it up under a side gig. Plus, you’ll have access to several tax advantages with a home-based side business (regardless of whether it produces a profit).
#4 Set Up a Roth IRA
Establishing a Roth IRA investment account will protect you from tax hikes during your retirement. Your money will compound interest tax-free and you’ll pay no taxes on withdrawals when you retire.1
While there’s a cap on annual IRA contributions, there’s no limit on the number of IRAs you can have. For some people, it makes sense to set up both a Roth and traditional IRA in addition to employer-sponsored retirement plans.
#5 Keep Your Plan Goals Up to Date
If you’ve received a quarterly account statement recently, you may have felt that punch-in-the-stomach wince seeing its value decline based on falling stock prices. If you have decades until your retirement horizon, this is simply part of the ongoing “two steps forward, one step back” kind of progress that’s expected in higher-risk investments.
However, as you get closer to retirement, it’s more important to reinforce the security of what you’ve grown. An annual financial checklist should always include a reset of your retirement savings goals and fund choices based on age and risk level.
#6 Understand the Tax Incentives
The federal government uses tax law to encourage desired consumer behaviors, and one of the high-priority outcomes is to get more Americans on track to save for their retirements. These three incentives can make a difference in your tax bills and savings progress:
- Reduce taxable income by contributing to a traditional IRA up to $6,000 – $7,000
- Contribute to an employer plan with pretax dollars to reduce your taxable income
- Take the saver’s tax credit of up to 50% of plan contribution based on income eligibility
#7 Calculate Your Needs
There are some common calculations and suggestions related to saving and retirement planning that can help you plug in numbers and come up with scenarios for you. Consider:
- Planned retirement age – The age at which you retire plays heavily into calculating how much you’ll need to have saved. The current average retirement ages are 65 for men and 62 for women, but some experts suggest planning a later age (often 67) to maximize earning time and savings total.2
- 30 years – Never a fun guess to make, but how much savings you need is based on how long you’ll need to draw income. 30 years is the rule of thumb for planning retirement duration.
- 80% of pre-retirement income – How much income will you need once you retire? Experts often use a percentage of pre-retirement income (between 70% and 85%, depending on the source) as a general guide to how much income you’ll need once you remove work and child-related expenses.
- 15% of your salary – 15% of your salary is a common goal to save throughout a work life that extends from your 20’s to your 60’s.
- 10x your salary – The exact calculation depends on your retirement age and desired lifestyle, but Fidelity’s approach to retirement planning is to multiply your salary by at least 10x to arrive at your savings goal.3
In this model, if you plan to retire at age 65 and live it up (spend about 15% more than you do now), you’d need to save 14x your annual salary.
- The 4% rule – Rather than a percentage of your work-life salary, you can dream up any desired income you want during your retirement years. Then, divide that number by 4% to calculate how much you need to save to generate that amount.
For instance, if you want to count on $80,000 per year, you’ll need retirement savings of $2 million (80,000 / 0.04 = 2,000,000).
#8 Utilize Financial Planner Expertise
Don’t toss out marketing offers from your plan manager for free consultations or discount services—wise financial planning advice can help you maximize your savings at any age.
Working with a financial planner isn’t just for the one-percenters. No matter your financial profile, you can start by asking what tools, resources, and counseling are available through your:
- Bank or credit union
- Retirement plan management company
- Human resources department or general benefits hotline
#9 Watch Out for Fees
Nothing comes for nothing—whoever is managing your retirement accounts is making a profit by doing so. You may be paying them directly with a variety of fees or charges, or indirectly.
When you’re reviewing your accounts, include fee type and amount as part of your selection process for:
- Choosing 401k fund selections (look for funds with lower expense ratios)4
- Rolling former employer plans into current or new IRAs
- Shopping around to set up a new traditional, Roth, or SEP IRA
#10 Clean Up the Clutter
Once you’ve been in the workforce for a decade or more, you may begin to trail job-based retirement accounts behind you like tin cans tied to a bumper. Generally, you’ll have the option to either roll them over into another retirement account or leave them as-is so they continue to accrete slowly over time (without ongoing contributions).
If you’re not comfortable making decisions related to investing, it may seem easier to leave them as-is—after all, don’t multiple accounts automatically ensure you have a “diversified portfolio?”
However, there are two downsides to accumulating a collection of retirement accounts:
- Excess fees – Each plan is charging you administrative and investment management fees, and you may incur fees if your total drops below a minimum.
- Lack of oversight – Retirement plans need to be reviewed annually to align with your work-life window and investment goals. The more plans you have, the less likely you are to provide that level of oversight.
#11 Join a Credit Union
If you’re a member of a credit union, you’ll still want to shop around for investment and loan rates. However, credit unions are a good place to start looking for IRA plans (as well as general banking options) with lower fees.
Saving for retirement doesn’t have to be overwhelming or scary. The secret is to keep your focus on small steps and incremental growth over time to meet your individual retirement goals (rather than a pie-in-the-sky target).
- Money Crashers. 5 Different Types of Savings You Should Have Right Now. https://www.moneycrashers.com/types-savings-emergency-retirement-personal/
- Forbes Advisor. The Average Age Of Retirement In The U.S. https://www.forbes.com/advisor/retirement/average-retirement-age/
- Fidelity Investments. How much do I need to retire? https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire
- Investopedia. 401(k) Fees: Everything You Need to Know. https://www.investopedia.com/articles/personal-finance/061913/hidden-fees-401ks.asp