How To Save For Retirement At All Stages of Life

Consider how to save for retirement at each stage of your life to claim your ideal retirement life. Use these retirement planning tips so you can stop working, on YOUR schedule.

The earlier you begin setting aside money and saving for your future, the easier it is to have the right size of nest egg when you need it. With early saving habits, it will be possible to have options for retiring even before full retirement age.

And don't forget about the benefits of tax free savings accounts.

That way you can choose to work as long as you wish.

The most important thing to do to save for retirement is to make it automatic, so that you can save, save, save month after month and year after year without even thinking about it.

Do it with a workplace 401k or an automatic draft to an IRA account.

Your employer may be able to make an IRA deposit from your paycheck directly to your IRA.


How To Save For Retirement: In Your 20's

As soon as you begin working a full time job, have your own place or live on your own, you should establish an IRA or 401k account and begin to save for your nest egg.

Knowing how to save for retirement is simple: just make it automatic.

If you have the option of contributing to a 401k plan, contribute at least 6% of your income. By doing this, you may be eligible for a matching contribution if your employer offers one.

Note: A 401k with a match is FREE money, so don't skip this one if one is available to you.

The first step for new investors is learning a little about investing. See the article that explains what mutual funds are as a start. Then learn about mutual fund fees before you setup your first investment account.

If a 401k plan is not available to you yet, establish an IRA account. (See the menu at left for more on this topic.)

A good time to do this is when you get your tax refund. Save a portion of it for your future and use the rest for what you need. The IRA contribution reduces your taxable income and thereby reduces the taxes you pay for another way to save.

First, open the IRA account, then check to see if your employer offers you the option to send a portion of your paycheck to an additional account besides your direct deposit to your checking account.

By sending a steady stream of money to your IRA or 401k you get the benefit of dollar cost averaging, which is a fancy way of saying that you get a benefit even when markets are down by buying investments when they are under-priced or on sale.

These discounted investments will bring you extra gains when markets return to normal, at which time you will be buying more at normal prices for more future gains.

Once you know how to save for retirement, you'll easily be able to retire after just a couple of decades of career work. The secret is to start early, make it automatic, and enjoy your work. Before you know it, you'll be ready.


How To Save For Retirement: In Your 30's

By the time you reach your 30's you should have already started to save in tax advantaged accounts, either an IRA or 401k (or similar).

In your 30's, this is the time to start paying attention to your asset allocations. An easy way to learn the best allocations for your portfolio is to look at target date funds. You can put your portfolio on auto-pilot by choosing these funds where the target date corresponds to your target retirement year. If you're a bit more knowledgeable, you can simply use these funds as a guide for how to divide your investments.

Each year along with your pay increases, increase your savings percentage by a point or two. By the time you reach age 40, you should be close to the maximum allowable contribution amount.

Buy Your Own Home

If you haven't already done so, buy your own home and pay it off before you reach retirement age, which could be 55 or the traditional age of 65.

Owning your home is one key to having a comfortable retirement. Without it, you will need to save an additional $300,000 or more for the same lifestyle.

Think of it as a way to save for your later years, by converting rent money to a retirement investment.

Save for Retirement First, Then Kids' College

Always make saving for retirement a priority over other expenses, even your kids' college. It is that important to your long term security. Your kids can use student loans or earn scholarships, but there are no such options for retirement.

Be Smart: Health Care for Retiring Early

Until the US government solves the health care problem, smart people think about health care as part of their retiree planning. Choose a job that provides health care benefits after 20 years service, or save in a portable health care savings account.

How To Save For Retirement: In Your 40's

When you reach your 40's, plan to max out your contributions. Re-balance your portfolio each year.

Make it a priority to pay off any debts before you reach age 50. Clear all credit card debt. Pay extra on your mortgage. If you have spare cash to invest, look into after-tax mutual funds or real estate investments for extra ways to save.

Begin thinking about how you want to spend your time as a retiree. Consider whether you want to retire early, and if so when. Save more aggressively if you want early retirement.

If you do intend to explore your retiring early options, consult a fee-only financial advisor to help you solidify your goals and set realistic savings targets. This will also give you an idea of how much more to save and how soon you can retire or even reduce the amount you save until you're ready to stop working.

As you approach your 50's, learn more about 401k and IRA withdrawal rules and so you can properly plan for your retirement income and avoid early withdrawal penalties.


How To Save For Retirement: In Your 50's

Now is the time to really visualize your retirement dreams. Talk with your spouse about how you want to spend your time once you're retired.

Your plans need to be somewhat compatible. For example, if you want to travel but your spouse wants to spend time with family or work on hobbies at home, you'll both need to compromise to meet in the middle.

Put together a detailed plan and brainstorm on your expenses and income needs. Test your "retiree budget." (See the menu for more on these topics.)


Keep your portfolio balanced each year. Take advantage of the extra savings available to 50-plus workers.

Consult your financial advisor to make sure everything you are planning has the correct financial underpinnings.

By this time, you're ready to retire.

(See How To Retire), then just DO IT!


How to Save for Retirement