Retirement Savings by Age: Strategies for Different Life Stages

Calculating how much you need to put aside in average savings for retirement is just the first step toward securing your future. Creating a simple strategy can take the fear and guesswork out of retirement planning and put you on the path to achieving your goals. Once you know what you'll need, it's time to make a targeted plan for retirement savings by age.

How much do you need for retirement?

It's important to understand that your approach to saving for retirement may shift over time as your earning potential and financial responsibilities change. That said, getting started early is ideal—as soon as you start your career, if possible.

First, estimate how much money you might need in retirement savings by looking at your current income and expenditures. From these figures, you can estimate your future expenses.

Jot down all your current expenses, then cross off the ones that won't be applicable at your chosen retirement age. Will you be renting, or will you own a home? Will you own your cars or lease them? Are you going to be paying for your kids' college tuition? It might be difficult to visualize what your life will be like at retirement age, but it's helpful to envision potential scenarios.

Quick tips to save more for retirement as you age

Only got a minute or two? Watch our video to get a quick summary of strategies and techniques to help you save more for retirement throughout your career.

Get an early start in your 20s

Starting early on retirement savings can help you form financial discipline that will last throughout your working days, setting you up for a comfortable life once you've reached retirement.

Traditional retirement savings advice might not always be practical for millennials and Gen Z, given the underemployment and record levels of student debt that college graduates face today. That said, adopting basic principles of financial planning can help younger generations get ahead in saving for retirement while balancing a modest income and myriad expenses.

Debt resistance should be at the top of this list. Life is unpredictable, so setting aside cash savings as an emergency fund can be a useful way to prepare for any financial curveballs. Having liquid funds to use for emergencies or rainy days will prevent you from getting off track financially when sudden expenses arise.

Credit management can play a key role here. Instead of using a high-interest credit card when you're confronted with these kinds of costs, you can use the funds in your savings account to help protect yourself from falling into debt. If you already have some high-interest credit card debt, think about applying for a balance transfer to a new card with a lower rate. This will help you make progress on paying down the principal debt without the pressure of accumulating a lot of interest.

Set yourself up for financial success in your 30s

Retirement savings in your 30s is important because of the power of compound interest. Simply put, compound interest is the interest you earn on your interest. Over the long term, the magic of compound interest means that your investment builds on itself, without you having to do anything at all. The earlier you begin saving for retirement, the more you can yield by the time you retire.

It's recommended that you invest as much in your 30s as you can. If your company has a 401(k) or 403(b) plan, find out how much they'll match. These investments have two special advantages. First, what you contribute is pre-tax, which lowers your taxable income. Second, your employer may match a percentage of your salary or your contribution—free bonus money for you.

To really maximize your retirement savings, consider opening an individual retirement account, or IRA, in addition to your 401(k), which may allow you to contribute additional funds every year. A traditional IRA lowers your taxable income even further, whereas you pay no tax on a Roth IRA when you use it in retirement.

Here's a pro tip: Every time you get a raise, increase the amount you're contributing to your 401(k) or IRA. You can use a 401(k) calculator to help plan.

Build on your financial gains in your 40s

Your 40s are often your peak earning years. By this time, you may own a home or have other sources of equity you've been building as well. The combination of these factors may put you in your strongest financial position yet, giving you more power to make a big impact on your retirement savings.

Accordingly, it may be a good idea to reduce your debt at this point in your life—the less money you're putting toward paying down debt, the more you can save for retirement. Figure out which debts are positive, such as a mortgage, and which debts you should pay off first, such as credit cards.

You may also want to reduce the number of investments you have in aggressive, high-risk stocks. Consider moving at least a percentage of your investment portfolio into bonds or more stable investments.

This period is also the time to buy long-term care insurance. Although it's not a direct contribution to retirement savings, long-term care insurance protects the assets you've spent so long building. Buying long-term care insurance when you're in optimal health reduces premiums and ensures your retirement savings stay intact.

Contribute as much as possible in your 50s

Saving for retirement in your 50s is usually about catching up. You can take advantage of catch-up contributions by adding $6,500 more to your 401(k) per year and $1,000 more to your IRA. These contributions help you put more money toward retirement at a faster rate. Even if you can't contribute the full amount, take advantage of catch-up contributions to boost your savings.

This can also have a huge effect on your Social Security payments in the following decades. You can technically begin withdrawing retirement savings by age 62, but if you can use your savings and wait until age 70, you'll get a significant increase in benefits. If you retire at 65, that's only 5 years until you can begin withdrawing to get the maximum amount. Use your catch-up contributions to plan for the time differential.

Wrapping up

The most important part of retirement planning is simply to begin, whatever age you are. Start by calculating the average savings for retirement that you'll need, and talk to a financial advisor for help in maximizing your savings and reaching your goals.