Maybe retirement seems like a distant dream, or maybe it’s just a few years away. Either way, you’re going to want to put saving for retirement on today’s to-do list.

By Kate Rockwood
Updated July 23, 2020
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Saving for the future may feel like a drag. Our brains naturally prioritize the here and now (psychologists call this “present bias”), and research shows that saving is especially hard when you think of time as one superlong stretch, says Brad Klontz, PsyD, a certified financial planner and a founder of the Financial Psychology Institute. So stop. Instead of picturing retirement as some far-off finish line, approach it as a series of checkpoints. Here is how to save for retirement at every age, whether you’re decades away from retirement or hoping to leave work as soon as possible.

GET STARTED: Aim to put 5 to 6 percent of your pretax income toward retirement (which typically gets you the match from your employer) and another 5 to 6 percent into short-term savings (so you don’t dip into your retirement account when a curveball hits). With every raise or paid-off student loan, try to increase those percentages until the accounts are getting at least 15 percent combined of your earnings, says Katie Waters, a certified financial planner and the founder of Stable Waters Financial, based in Athens, Ga.

Once your emergency fund is built up (three to six months of living expenses), put the whole 15 percent toward your retirement account. Just starting out? Investing even $50 a month will make retirement savings a habit. And the earlier you start, the longer compound interest can work in your favor. Let’s say you have $5,000 to put toward retirement. If you invest it with 30 years to go and get an average return, you’ll end up with about $40,000 in your retirement account—without your having to kick in an extra dime.

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TURBOCHARGE SAVINGS: One-third of baby boomers have $25,000 or less stashed for retirement, but research shows that even if you’re starting from scratch, you still have time to catch up. To work toward reaching the $1 million mark in two decades, researchers at the American Association of Individual Investors say you should max out your 401(k) and take advantage of catch-up contributions (an extra $6,000 a year is allowed for those age 50 and older), as well as lean aggressively into stocks.

If you already have some momentum with your retirement accounts, use this checkpoint to crank the dial a little higher. The average 401(k) participant saves about 10 percent each year, including employer contributions. That’s nothing to sneeze at, but it’s still a far cry from the 15 percent most experts recommend. Need to free up some cash to throw at your investment portfolio? Ask: Is it time to close the Bank of Mom and Dad for your college-age kids? Would downsizing sooner than expected make sense? Or can you beat back some of the lifestyle creep that’s so common mid-career?

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PAINT A PICTURE: For past generations, retirement tended to be abrupt—from full-on work to full-on leisure. Now, surveys show, nearly half of pre-retirees are planning on a phased retirement, like shifting to part-time work, and nearly 20 percent say they want to try something new, like launching their own business or changing employers.

“The more clearly you can imagine what you want retirement to look like, the more motivated you are to work toward it,” says Deacon Hayes, author of You Can Retire Early! Retiring to a beach house versus launching a vacation-rental side hustle will warrant different financial plans and quit-your-job timelines. And if you do dream of something radically different, you can spend these years building the skills for it or testing the entrepreneurial waters—while still working at your day job.

Stash some cash too, says Waters. Conventional wisdom says everyone should have an emergency fund that covers three to six months of essential living expenses. You still need that stashed cash in retirement—in fact, it’s so important that six months probably won’t cut it. “The goal is to head into retirement with one to two years of cash savings in your overall portfolio, as a buffer in times of market volatility,” Waters says. Building up those reserves won’t happen overnight, so make it a top priority now.

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CRUNCH THE NUMBERS: Fidelity Investments recommends having 10 times your annual income in retirement savings by age 67. Another rule of thumb, which Waters recommends, is to mock up your ideal retirement annual income, then divide that number by 0.0375. (So $50,000 in annual income would require at least $1 million.)

“These calculations can be scary, especially if you fall short,” she says. But it’s better to know now—rather than after you send out invites for your retirement party—whether you should double down on your savings or plan to work a few more years.

Also keep in mind that age can play a big factor in Social Security benefits, and your “full retirement age” might not be the same as your spouse’s or colleague’s. Claim benefits before you hit that target, and your benefit checks could be up to 30 percent smaller—permanently. To calculate your benefits and when you’ll hit full retirement age, head to ssa.gov.

Thanks to Scott Goldberg, president of financial planning firm Bankers Life, and Matt Fellowes, Ph.D., founder of money management firm United Income.