How to Save for Retirement at Any Age

Saving for Retirement

There are two main reasons people think they don’t need to save for retirement: they’re either too young or too old. 

The truth is there’s no set age when you should start preparing for retirement. Regardless of your age, the best time to start planning is now.  

That’s because the farther in advance of retirement you begin saving, the more time your money has to grow. But even if retirement is just around the corner, you can still make adjustments to improve your financial future.

Why save for retirement? 

Misconceptions about retirement might be holding you back from saving. For some people, you might assume that you’ll automatically retire at a certain age, regardless of whether or not you prepare. Others might avoid planning and saving because they believe they will never be able to afford retirement. 

Regardless of your group, having a more realistic view of retirement, including how much it costs and the value of saving even just a little bit of money, can help you improve your strategy. Here are a few things you should know:  

  • Time spent in retirement: A 65 year old has a total life expectancy of 84 years. If that person retires at 67, they’ll be retired for 18 years. 
  • Cost of being retired: If you want to maintain your lifestyle during retirement, some experts say you’ll need up to 80% of your pre-retirement income. 
  • Some savings are better than none: Even if you can’t save enough to fully retire the way you want, contributing to a retirement account can still increase your guaranteed income during retirement, reduce your taxes, and increase the compensation you get for your work (if you have an employer match). 
  • Social security issues: The estimated average monthly Social Security retirement benefit in January 2024 is $1,907, which is just $22,884 a year. But if new legislation isn’t passed, there won’t be enough funds to pay out 100% of Social Security benefits starting somewhere between 2033 and 2035. 

In short, it is imperative to save for retirement and start saving as soon as possible, no matter your age, so you can better enjoy your later years. 

Contribute to a retirement account 

A retirement account is set up specifically for long-term savings that you’ll use during your retirement. Opening and contributing to a retirement account can help you in several ways: 

  • Grow your money by earning interest on your balance 
  • Reduce your income taxes (for certain types of accounts) 
  • If available, take advantage of free money via an employer match on your contribution 

Despite that, the most recent Federal Reserve data shows that only 54.3% of U.S. families have a retirement account. If you need to kick-start your savings, here are the two most common types of retirement accounts you can use to put money aside and let it grow.  

Employer-sponsored plans 

If your employer sponsors a retirement plan, it’s likely a 401(k) or a 403(b). But there are also solo 401(k) plans available to self-employed individuals. Here’s a closer look at these accounts: 

  • Pre-tax contributions: Both a 401(k) and a 403(b) give you the opportunity to make “pre-tax” contributions from your paycheck. That means the amount you contribute is not included in your taxable income. While you may see a $25 deposit to your 401(k) on payday, less than $25 will be ‘missing’ from your take-home pay because of your reduced taxes. Just keep in mind that you will likely have to pay taxes when you make a withdrawal. 
  • Employer match: Some employers offer a matching contribution, meaning they’ll deposit an amount equal to your contribution, up to a certain percentage of your income, into your retirement account. If your employer offers a match, taking advantage of it is one of the few opportunities you have to bring in more money without doing extra work. 
  • Contribution limits: In 2024, the maximum amount you can contribute to your 401(k) or 403(b) plan is $23,000. People over 50 can make an additional “catch-up” contribution of $7,500. But don’t let those figures scare you. Any portion of your paycheck you can direct to retirement will benefit you later in life.  

Individual retirement accounts (IRAs) 

Individual Retirement Accounts, or IRAs, are accounts you can open on your own, not through an employer. Typically, IRAs are available through investment firms that invest the money in a combination of stocks, bonds and mutual funds, or banks, which place the money in a certificate of deposit or similar interest-earning account.   

There are two main types of IRAs: 

  • Traditional IRA: The amount you contribute may be tax deductible. Only when you start withdrawing money during retirement is the original contribution amount, plus any earnings, taxed as ordinary income. 
  • Roth IRA: Your money is contributed “after tax” meaning there’s no tax benefit up-front. But qualified withdrawals made after age 59½ may be tax free if you first contributed at least five years prior. Additionally, may be able to withdraw your Roth IRA contributions without tax penalties. 

For the 2024 tax year, taxpayers can contribute up to $7,000 to an IRA, or a maximum of $8,000 if aged 50 or older.  

How to save for retirement: Tips for every age group 

Want to maintain your current quality of life in your retirement years? Here’s how much you need to have saved for retirement at every age: 

  • 30: The equivalent of your annual income 
  • 40: Three times your annual income 
  • 50: Six times your annual income 
  • 60: Eight times your annual income 
  • 67: 10 times your annual income 

The best way to build a habit of saving for retirement is to set up a recurring, automatic deposit to a retirement account now, regardless of your age. Then, plan to increase your deposit amount at regular intervals or when your financial situation changes.  

You can begin with a small amount from each paycheck, but if possible you’ll want to max out your full employer match as soon as possible. 

By making automatic deposits, you’ll make it second nature to spend less than your full pay, and eventually you might not even miss having the extra funds available.  

Benefits of saving when you’re young 

The younger you start saving, the more your money will grow. That’s because of compound interest, which means the interest you earn will increase your balance, which increases your interest earnings and further increases your balance. 

In other words, you can potentially earn a lot more by saving a small amount now than by saving a large amount later.  

Benefits of saving after 50 

People aged 50 and over are allowed to contribute more to their retirement accounts than younger individuals, through what the IRS calls catch-up contributions. The limit on these contributions is different for each retirement account and it can change every tax year, but if you can afford to, contributing the maximum amount will help you to boost your retirement savings. 

You can also contribute to an IRA for the previous tax year until the current year’s tax filing deadline to get another deduction before filing. In other words, you have until April 15, 2024 to contribute up to the maximum amount for 2023.  

If you have specific questions or concerns about how to file taxes and take advantage of deductions, we recommend consulting a trusted tax professional. 

Written by Sarah Brady | Edited by Rose Wheeler

Sarah Brady is a financial writer and speaker who’s written for Forbes Advisor, Investopedia, Experian and more. She is also a former Housing Counselor (HUD) and Certified Credit Counselor (NFCC).

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