How to save for retirement: 5 steps to your retirement number

Retirement may feel distant when you're in your 20s or 30s, but the decisions you make now, including how much you save, where to invest and how to structure your accounts, will shape what that chapter looks like.

While rising costs, longer lifespans and competing financial priorities make this more complex than just simply "saving more," a structured approach can help you clarify your goals, assess your resources, and create a plan tailored to your needs.

Here’s how to save for retirement in a way that stays realistic, flexible and aligned with your goals.

1. Define your retirement lifestyle and budget

Before you run a single number, get honest about the retirement you actually want. When do you plan to retire? Retiring at 55 looks very different from working until 67, which is the full retirement age for Social Security retirement benefits if you were born in 1960 or later. The earlier you retire, the more you need to save and the less time you have to do it. And keep in mind that Social Security is intended to cover only a percentage of your pre-retirement income based on your lifetime earnings. Visit https://www.ssa.gov/planners/calculators/ to help you estimate your benefits.

Next, think about your spending. A general guideline is to plan for 70-80% of your pre-retirement income to maintain your current standard of living. But if you want to travel extensively, spend winters in a warmer climate, support your family or pursue hobbies, you may need to plan for 100% or more.

The clearer your picture of retirement, the more precise your savings target becomes.

2. Determine your starting percentage

A common question when establishing your retirement saving strategy is what percentage of income you should save for retirement. A general rule of thumb is to save 10–15% of your pre-tax salary each year for retirement, including any employer contributions. This target is a helpful baseline for most people to start with, because while you might not necessarily notice the difference each paycheck, it’s enough to make a difference over a 40+-year career.

That said, the right percentage to save for retirement depends on your timeline, your goals and where you are financially right now. If 10-15% isn’t realistic, start with what you can manage. Even a 5% contribution establishes a habit and gets your money in the market. Figuring out what you can set aside per month may make it easier to stay consistent and within your budget.

Want a personalized look at retirement planning to fit your specific needs and goals? Use our retirement calculator.

3. Accelerate your growth with the right investment accounts

How much you save matters. Where you save it matters just as much. A tax-diversified approach – spreading contributions across different investment account types – gives you more flexibility now and in retirement.

Here are three buckets to consider.

Contribute to a 401(k) to capitalize on the match

The tried and true standby, investing through an employer sponsored retirement plan like a 401(k) is a great foundation for your retirement savings. If your employer offers a match, contribute at least that much to avoid leaving money on the table.

From there, look for ways to boost your contributions. Any time you have more income coming in than you normally do, such as when you get a bonus or a raise, direct a portion straight to your 401(k). If you’re 50 and older, catch-up contributions allow you to save beyond the standard annual limit.

Contribute to a Roth account to diversify your tax exposure

Aside from a traditional 401(k), and depending on your income level, also look into a Roth IRA or Roth 401(k). These types of retirement accounts are funded with after-tax dollars, which means in retirement your withdrawals are tax-free.

A Roth account can help you build a tax-diversified portfolio, hedge against future tax rate increases and give you more flexibility in your retirement income strategy. While much of what you save for retirement each year can be funneled into your traditional 401(k), consider putting a small percentage into a Roth account. 

Take advantage of an HSA

If you have a high-deductible health plan, a health savings account (HSA) can be a powerful retirement savings vehicle. It’s the only account that offers a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.

An HSA can help you accumulate savings while you’re still working and provide a source of healthcare funds in retirement. And while you can't contribute to an HSA once you enroll in Medicare, the funds you've accumulated can cover premiums, out-of-pocket healthcare costs and long-term care expenses in retirement.

Used strategically, an HSA functions as a dedicated healthcare fund that takes pressure off your other retirement savings.

4. Harness the power of compound growth

Time is the most valuable asset when investing for retirement. The earlier you start, the less you need to contribute to reach the same outcome.

When your investments earn returns, those returns generate their own returns. This is known as compound growth, and its impact accelerates significantly over decades. Waiting even a few years can dramatically increase how much you’ll need to contribute each month to close the gap.

Consider two investors who both want to retire at age 65. They each invest $400 a month with a 7% annual return.

Investor A started 10 years earlier and contributed only $48,000 more of their own cash yet ended up with more than double the final portfolio value. That gap is compound growth at work.

Don’t be discouraged if you’re starting later than you’d like. Every dollar you invest today works harder than a dollar you invest a year from now.

5. Automate and escalate

The best way to ensure you’re regularly investing for retirement is to make saving automatic. Setting up contributions to be deducted directly from your paycheck or bank account can turn a percentage goal into a manageable monthly savings amount. This “pay yourself first” approach removes the temptation to spend it elsewhere.

Once you’ve got your investments on autopilot, build in an escalation plan. Commit now to increasing your contributions the next time you get a raise or bonus. If you receive a 4% raise, for example, direct 2% of it to your 401(k). You'll still take home more each paycheck, but you'll also accelerate your progress without feeling the pinch. It's a straightforward way to prevent lifestyle creep from quietly eroding your long-term progress.

Your retirement readiness checklist

You have the strategy. Now you need to execute. Use this checklist to keep your strategy on track.

• Define your vision: Write down what your ideal retirement looks like, including when you want to retire.
• Calculate your number: Run the numbers to determine how much you need to accumulate and what percentage of income should go toward retirement to achieve your vision.
• Invest in the right accounts: Build a tax-diversified portfolio for more flexibility and potential tax savings in retirement.
• Automate your contributions: Make saving for retirement easier by setting up automatic transfers to your investment accounts each month.
• Review annually: Check your progress once a year and adjust for raises or life changes.

Take it further with a financial professional

These five steps give you a strong foundation for retirement saving. But retirement planning is rarely one-size-fits-all, and the most effective strategies are built around your specific income, goals, and timeline.

A financial professional can help you stress-test your plan, identify gaps you may not have considered and uncover opportunities to accelerate your savings. A fresh perspective from someone who sees these situations every day can make a meaningful difference in where you end up.

Learn how we can help you work toward your retirement goals.