Key takeaways

  • The exact amount you should save for retirement will vary based on your goals, timeline and financial situation, but try to save at least 10% of your pre-tax salary each year.

  • Saving through a variety of investment accounts with different tax treatments may help reduce the taxes you pay over your lifetime and into retirement.

  • A workplace retirement plan (e.g., 401(k)), a Roth account and an HSA are good options to start investing in.

While it’s tempting to answer the question “How much should I save for retirement?” with “As much as possible,” such a vague answer isn’t especially helpful for planning purposes.

The amount of money you should save for retirement depends on your specific goals, timeline, and financial situation. That said, there are some general guidelines you can follow to ensure you’re in good shape. Lauren Klein, vice president, Advisory Consulting Services at U.S. Bank, breaks down how much you should aim to set aside – and strategies to help you stay on track during different phases of life.

One thing that everyone should do is diversify the types of accounts you’re saving your money into so you can maximize your tax situation into retirement.

A general rule of thumb for yearly saving

While the exact percentage of income to save may vary based on your goals, saving 10 to 15% of your pre-tax salary each year is a good baseline. “It’s a percentage we use as a general rule of thumb,” Klein says, “because while you might not necessarily notice the difference each paycheck, it’s enough to make a difference come retirement.”

To calculate the 10 to 15%, remember to use your pre-tax salary figure – and then follow the tips below to help you get there.


How to save for retirement

Everyone’s financial situation is unique. Some may start saving for retirement early on, while others have had to play catch up after a late start. One thing that everyone should do, says Klein, is diversify the types of accounts you’re saving your money into so you can maximize your tax situation in the future.

Here are three buckets to consider when saving for retirement.


1. Contribute to a 401(k)

The tried and true standby, investing through a workplace retirement plan like a 401(k) is a great foundation for your retirement savings. “Especially if your employer offers a match, contribute at least the percentage of what your company is willing to put into your 401(k) to avoid leaving money on the table,” says Klein.

She also suggests you find ways to boost your contributions. “Any time you have more income coming in than you normally do – let’s say when you get a bonus or a raise – use that to increase your contributions when possible,” Klein says. “It’s an easy way to contribute more, because people tend to adjust to what hits their bank account. If you can set aside that money from the start, you won’t miss it.”


2. Contribute to a Roth account

Aside from a traditional 401(k), Klein suggests that depending on your income level, you also look into either a Roth 401(k) or Roth IRA. A Roth 401(k) is likely another option offered by your employer, and technically you can invest in both types of 401(k)s at the same time. A Roth IRA, on the other hand, is an individual retirement account that is usually self-directed or set up with the guidance of a financial professional.

Both a Roth 401(k) and a Roth IRAs offer potential tax benefits, because your contributions are taxed now instead of when you ultimately withdraw funds. This means that when you need to access your funds during retirement, everything in your Roth account is yours, tax-free. “A Roth account can really maximize your tax situation in retirement,” Klein says, “especially if you expect to be in a higher tax bracket in the future.” Klein suggests that while much of what you save for retirement each year can be funneled into your traditional 401(k), it’s wise to put at least 1 to 5% of that into a Roth 401(k) if offered by your employer. 


3. Take advantage of an HSA

An avenue that many people overlook when it comes to retirement savings is an HSA, or health savings account – and it’s one Klein wishes more people would take advantage of. “In retirement, healthcare expenses are so high, and it’s something that can really eat away at your savings,” says Klein. “The HSA is the only account in existence that is tax-free going in and tax-free going out.”

Contributing to your HSA is just as important as contributing to your other accounts – especially if you have a high-deductible health plan. Plus, it can help offset the costs of long-term care, which nearly 70% of Americans will need at some point in their lives.


Smart retirement savings moves to make at every life stage

How long you have until retirement will also affect how you save and what strategies are best suited to you. Here are some age-specific tactics Klein recommends to maximize your retirement savings.


1. Starting out in your career

As a young investor, you have two things on your side: time and compound interest. That means the earlier you can start saving for retirement, the better. “There’s a quote by Benjamin Franklin where he says compound interest is the eighth wonder of the world,” Klein says. “It’s so true. Starting early can drastically change your situation, so meeting with a financial planner today versus waiting can really alter your retirement outcome.” Klein notes that people who are just starting out and not yet in a high tax bracket would be particularly wise to capitalize on a Roth account.


2. Planning for kids or another life change

Expanding your family or preparing for another large life event can quickly change your budget. To plan ahead, Klein recommends contributing as much as you can to your 401(k) pre life event. The logic behind this is that you not only increase your retirement fund, but also learn to live on less. That way, when kids come along or another life event happens, that same money can go toward those expenses.


3. When retirement is on the horizon

An option that can help ease the transition from working full-time to retirement – both financially and psychologically – is phasing into your retirement. “A lot of people will start working three-quarters of the time and then part-time before they retire completely,” acknowledges Klein. “That really helps, because you’re not leaning so heavily on your savings right away.” If it works for you, stretching out retirement in phases can give you more wiggle room with your budget and allow you the potential to do more of what you want to do in retirement.

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