Take a fresh look at your lifestyle.

How to Save for Retirement, Decade by Decade

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Editor’s Note: This story originally appeared on The Penny Hoarder.

You probably don’t need us to tell you that the earlier you start saving for retirement, the better.

But let’s face it: For a lot of people, the problem isn’t that they don’t understand how compounding works. They start saving late because their paychecks will only stretch so far.

Whether you’re in your 20s or your golden years are fast-approaching, saving and investing whatever you can will help make your retirement more comfortable.

We’ll discuss how to save for retirement during each decade, along with the hurdles you may face at different stages of life.

How Much Should You Save for Retirement?

save money
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A good rule of thumb is to save between 10% and 20% of pre-tax income for retirement. But the truth is, the actual amount you need to save for retirement depends on a lot of factors, including:

  • Your age. If you get a late start, you’ll need to save more.
  • Whether your employer matches contributions. The 10% to 20% guideline includes your employer’s match. So if your employer matches your contributions dollar-for-dollar, you may be able to get away with less.
  • How aggressively you invest. Taking more risk usually leads to larger returns, but your losses will be steeper if the stock market tanks.
  • How long you plan to spend in retirement. It’s impossible to predict how long you’ll be able to work or how long you’ll live. But if you plan to retire early or people in your family often live into their mid-90s, you’ll want to save more.

How to Save for Retirement at Every Age

Women of multiple generations
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Now that you’re ready to start saving, here’s a decade-by-decade breakdown of savings strategies and how to make your retirement a priority.

Saving for Retirement in Your 20s

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A dollar invested in your 20s is worth more than a dollar invested in your 30s or 40s.

The problem: When you’re living on an entry-level salary, you just don’t have that many dollars to invest, particularly if you have student loan debt.

Prioritize Your 401(k) Match

Piggy bank with 401k on the side, next to stacks of coins
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If your company offers a 401(k) plan, a 403(b) plan or any retirement account with matching contributions, contribute enough to get the full match — unless of course you wouldn’t be able to pay bills as a result.

The stock market delivers annual returns of about 8% on average. But if your employer gives you a 50% match, you’re getting a 50% return on your contribution before your money is even invested. That’s free money no investor would ever pass up.

Pay Off High-Interest Debt

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After getting that employer match, focus on tackling any high-interest debt.

Those 10% average annual stock market returns pale in comparison with the average interest rate for people who have credit card debt — nearly 20% in early 2023. In a typical year, you’d expect a $100 investment could earn you $10.

Put that $100 toward your balance? You’re guaranteed to save $20.

If you have federal student loans that have been in automatic forbearance since March 2020, you’ll need to make a budget that includes the minimum payment. Though forbearance remains in effect as of this writing, mandatory payments are likely to resume in 2023.

Take More Risks

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Look, we’re not telling you to throw your money into risky investments like bitcoin or the penny stock your cousin won’t shut up about.

But when you start investing, you’ll probably answer some questions to assess your risk tolerance. Take on as much risk as you can mentally handle, which means you’ll invest mostly in stocks with a small percentage in bonds.

Don’t worry too much about a stock market crash. Missing out on growth is a bigger concern right now.

Build Your Emergency Fund

Emergency fund
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Building an emergency fund that could cover your expenses for three to six months is a great way to safeguard your retirement savings. That way you won’t need to tap your growing nest egg in a cash crunch. This isn’t money you should have invested, though. Some options include:

Tame Lifestyle Inflation

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We want you to enjoy those much-deserved raises ahead of you — but keep lifestyle inflation in check. Don’t spend every dollar each time your paycheck gets higher.

Commit to investing a certain percentage of each raise and then use the rest as you please.

Saving for Retirement in Your 30s

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If you’re just starting to save in your 30s, the picture isn’t too dire. You still have about three decades left until retirement, but it’s essential not to delay any further.

Saving may be a challenge now, though, if you’ve added kids and homeownership to the mix.

Invest in an IRA

IRA investing
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Opening a Roth IRA is a great way to supplement your savings if you’ve only been investing in your 401(k) thus far. A Roth IRA is a solid bet because you’ll get tax-free money in retirement.

In 2023, you can contribute up to $6,500 if you’re younger than 50.

If you earn too much to fund a Roth IRA, or you want the tax break now (even though it means paying taxes in retirement), you can contribute to a traditional IRA.

Your investment options with a 401(k) are limited. But with an IRA, you can invest in whatever stocks, bonds, mutual funds or exchange-traded funds (ETFs) you choose.

Avoid Mixing Retirement Money With Other Savings

Roth IRA
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You’re allowed to take a 401(k) loan for a home purchase. The Roth IRA rules give you the flexibility to use your investment money for a first-time home purchase or college tuition. You’re also allowed to withdraw your contributions whenever you want.

Wait, though. That doesn’t mean you should.

The obvious drawback is that you’re taking money out of the market before it’s had time to compound.

But there’s another downside. It’s hard to figure out if you’re on track for your retirement goals when your Roth IRA is doing double duty as a college savings account or down-payment fund.

Start a 529 Plan While Your Kids Are Young

529 plan
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Saving for your own future takes higher priority than saving for your kids’ college. But if your retirement funds are in shipshape, opening a 529 plan to save for your children’s education is a smart move.

Not only will you keep the money separate from your nest egg, but by planning for their education early, you’ll avoid having to tap your savings for their needs later on.

Keep Investing When the Stock Market Crashes

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The S&P 500 index, which represents about 80% of the U.S. stock market, finished out 2022 with losses around 19%. The stock market has a major meltdown like the March 2020 COVID-19 pandemic crash about once a decade.

But when a prolonged bear market or crash happens in your 30s, it’s often the first time you have enough invested to see your net worth take a hit.

Don’t let panic take over. No cashing out. Commit to dollar-cost averaging and keep investing as usual, even when you’re terrified.

Saving for Retirement in Your 40s

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If you’re in your 40s and started saving early, you may have a healthy nest egg by now. But if you’re behind on your retirement goals, now is the time to ramp things up.

You still have plenty of time to save, but you’ve missed out on those early years of compounding.

Continue Taking Enough Risk

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You may feel like you can afford less investment risk in your 40s, but you still realistically have another two decades left until retirement. Your money still has — and needs — plenty of time to grow.

Stay invested mostly in stocks, even if it’s more unnerving than ever when you see the stock market tank.

Put Your Retirement Above Your Kids’ College Fund

Jar labelled
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You can only afford to pay for your kids’ college if you’re on track for retirement.

Talk to your kids early on about what you can afford, as well as their options for avoiding massive student loan debt, including attending a cheaper school, getting financial aid, and working while going to school.

Your options for funding your retirement are much more limited.

Keep Your Mortgage

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Mortgage rates vary from week to week. Your potential returns are much higher for investing, so you’re better off putting extra money into your retirement accounts.

If you haven’t already done so, consider refinancing your mortgage to get the lowest rate.

Invest Even More

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Now is the time to invest even more if you can afford to. Keep getting that full employer 401(k) match. Beyond that, try to max out your IRA contributions.

If you have extra money to invest on top of that, consider allocating more to your 401(k). Or you could invest in a taxable brokerage account if you want more flexibility on how to invest.

Meet With a Financial Adviser

Financial adviser
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You’re about halfway through your working years when you’re in your 40s. Now is a good time to meet with a financial adviser.

If you can’t afford one, a financial counselor is typically less expensive. They’ll focus on fundamentals like budgeting and paying off debt, rather than giving investment advice.

Saving for Retirement in Your 50s

Couple saving for retirement
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By your 50s, those retirement years that once seemed like they were an eternity away are getting closer. Maybe that’s an exciting prospect — or perhaps it fills you with dread.

Whether you want to keep working forever or retirement can’t come soon enough, now is the perfect time to start setting goals for when you want to retire and what you want your retirement to look like.

Review Your Asset Allocation

Series I U.S. government savings bonds
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In your 50s, you may want to start shifting more into safe assets, like bonds or CDs. Your money has less time to recover from a stock market crash.

Be careful, though. You still want to be invested in stocks so you can earn returns that will keep your money growing. With interest rates likely to stay low through 2023, bonds and CDs probably won’t earn enough to keep pace with inflation.

Take Advantage of Catch-Up Contributions

Health savings account (HSA)
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If you’re behind on retirement savings, give your funds a boost using catch-up contributions. In 2023, you can contribute:

  • $1,000 extra to a Roth or traditional IRA (or split the money between the two) once you’re 50
  • $7,500 extra to your 401(k) and most other workplace accounts once you’re 50
  • $1,000 extra to a health savings account (HSA) once you’re 55.

The Secure Act 2.0, which passed in December 2022, will increase catch-up contributions to employer-sponsored accounts workers between ages 60 and 63 beginning in 2025.

Work More if You’re Behind

Older black worker driving a forklift
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Your window for catching up on retirement savings is getting smaller now. So if you’re behind, consider your options for earning extra money to put into your nest egg.

You could take on a side hustle, take on freelance work or work overtime if that’s a possibility to bring in extra cash. Even if you intend to work for another decade or two, many people are forced to retire earlier than they planned.

It’s essential that you earn as much as possible while you can.

Pay Off Your Remaining Debt

Man paying off debt
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Since your 50s is often when you start shifting away from high-growth mode and into safer investments, now is a good time to use extra money to pay off lower-interest debt, including your mortgage.

Retirement will be much more relaxing if you can enjoy it debt-free.

Saving for Retirement in Your 60s

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Hooray, you’ve made it! Hopefully your retirement goals are looking attainable by now after working for decades to get here. But you still have some big decisions to make.

Someone in their 60s in 2021 could easily spend another two to three decades in retirement. Your challenge now is to make that hard-earned money last as long as possible.

Make a Retirement Budget

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Start planning your retirement budget at least a couple of years before you actually retire. Financial planners generally recommend replacing about 70% to 80% of your pre-retirement income. Common income sources for seniors include:

  • Social Security benefits. Monthly benefits replace about 40% of pre-retirement income for the average senior.
  • Retirement account withdrawals. Money you take out from your retirement accounts, like your 401(k) and IRA.
  • Defined-benefit pensions. These are increasingly rare in the private sector, but still somewhat common for those retiring from a career in public service.
  • Annuities. Though controversial in the personal finance world, an annuity could make sense if you’re worried about outliving your savings.
  • Other investment income. Some seniors supplement their retirement and Social Security income with earnings from real estate investments or dividend stocks, for example.
  • Part-time work. A part-time job can help you delay dipping into your retirement savings account, giving your money more time to grow.
  • Reverse mortgages. If you’ve paid off your home or have significant equity, a reverse mortgage can provide extra income.

Account for Decreased Expenses

Senior man holding money
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You can plan on some expenses going away. You won’t be paying payroll taxes or making retirement contributions, for example, and maybe your mortgage will be paid off.

But you generally don’t want to plan for any budget cuts that are too drastic.

Even though some of your expenses will decrease, health care costs eat up a large chunk of senior income, even once you’re eligible for Medicare coverage — and they usually increase much faster than inflation.

Develop Your Social Security Strategy

Social Security website
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You can take your Social Security benefits as early as 62 or as late as age 70. But the earlier you take benefits, the lower your monthly benefits will be.

If your retirement funds are lacking, delaying as long as you can is usually the best solution. Taking your benefit at 70 versus 62 will result in monthly checks that are about 76% higher.

However, if you have significant health problems, taking benefits earlier may pay off.

Figure Out How Much You Can Afford to Withdraw

Senior woman weighing whether to file for Social Security
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Once you’ve made your retirement budget and estimated how much Social Security you’ll receive, you can estimate how much you’ll be able to safely withdraw from your retirement accounts.

A common retirement planning guideline is the 4% rule: You withdraw no more than 4% of your retirement savings in the first year, then adjust the amount for inflation.

If you have a Roth IRA, you can let that money grow as long as you want and then enjoy it tax-free. But you’ll have to take required minimum distributions, or RMDs, beginning at age 73 (previously age 72) if you have a 401(k) or a traditional IRA.

These are mandatory distributions based on your life expectancy.

The penalties for not taking them are stiff: You’ll owe the IRS 50% of the amount you were supposed to withdraw for tax years 2022 and prior, though the penalty drops to 25% for 2023 and subsequent years.

Keep Investing While You’re Working

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Avoid taking money out of your retirement accounts while you’re still working. Once you’re over age 59 ½, you won’t pay an early withdrawal penalty, but you want to avoid touching your retirement funds for as long as possible.

Instead, continue to invest in your retirement plans as long as you’re still earning money. But do so cautiously.

Keep money out of the stock market if you’ll need it in the next five years or so, since your money doesn’t have much time to recover from a stock market crash in your 60s.

A Final Thought: Make Your Retirement About You

Happy senior couple
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Whether you’re still working or you’re already enjoying your golden years, this part is essential: You need to prioritize you.

That means your retirement savings goals need to come before bailing out family members or paying for college for your children and grandchildren. After all, no one else is going to come to the rescue if you get to retirement with no savings.

If you’re like most people, you’ll work for decades to get to retirement. The earlier you start planning for it, the more stress-free it will be.

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