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How to Save for Retirement

6 min read

Last Updated: April 24, 2025

Table of contents

Key Takeaways

Your age and post-retirement plans influence the amount of money you’ll need for retirement.
Social Security covers a portion of your retirement expenses, but not all.
Employee-sponsored retirement accounts include 401(k)s and pensions; you can also get an individual retirement account like an IRA.

If you’re not sure where to start when it comes to retirement savings, you’re not alone. While many Americans have saved some money to retire, the Federal Reserve reports that only 34% of adults under the retirement age believe they’re on track to save enough.

When you’re managing urgent expenses like rent, credit card bills, student loan payments, and groceries, retirement savings often fall through the cracks. However, taking the time to build a retirement savings plan pays off overall.

Know your retirement destination

Envisioning your retirement could help you determine how much to save for that chapter of your life. Start by asking yourself some questions:

Do you want to move closer to family?
Do you plan to spend your mornings sipping coffee on a sunny beach?
Do you want a vacation home?
Do you want to travel?
Will you still be paying for housing?
What is your health outlook?
Will you need a new vehicle?

While your plans and needs may change over time, these goals could help you shape your retirement planning. Other financial tools may also help you achieve your retirement goals. For example, a credit card could help you with family vacations or other trips after you retire.

Some credit cards offer travel rewards that could make expenses like flights, hotels, and rental cars more affordable. That way, you could spend less of your retirement savings on travel.

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Your intended retirement age also plays a key role in your costs. For most people in the United States, the full retirement age is 67, the Social Security Administration explains. However, you could collect partial retirement benefits as early as age 62. If you hope to retire earlier than that, starting to save is even more important. Working into your 60s or 70s could also impact your retirement needs.

How much money will you need in retirement?

Retirement needs differ for everyone. No formula could determine exactly how much money everyone needs during retirement. Factors like housing, health, and travel plans will influence how much you should save. However, some guidelines could help you plan for success.

One long-held retirement strategy is the 4% rule. This framework looks to extend the life of your savings over 30 years of retirement. According to this rule, you should withdraw about 4% of your investment savings during your first year of retirement. Each following year, you add any increases to the cost of living into your withdrawal percentage.

The 4% rule assumes the same expenses year after year. It doesn’t account for fees and taxes on your withdrawals or take into account a volatile economy. Retirees should discuss this option with their financial adviser and tweak where necessary.

Consider what savings plans may work for you

It’s never too early to start saving for retirement. Finding a savings plan that works for your income, goals, and lifestyle makes preparing for retirement easier.

One versatile method for saving is the 50/15/5 rule. Using this approach, you could:

Spend 50% of your income on necessities like groceries, rent, and bills
Put 15% of your pretax income into retirement
Use 5% toward short-term savings (like an emergency fund)
Use the remaining 30% of your income on shopping, travel, or to pay down debt

While the 50/15/5 plan is flexible, it may not work for everyone. Researching various budgets and savings plans could help you find the best fit for your unique needs and circumstances.

Different retirement savings accounts

The right retirement savings account could help you make the most of your savings. As you consider your options, ask yourself the following questions.

Does your employer have a retirement plan?

Does your employer offer a retirement plan, like a 401(k), as part of your benefits package? Employer-sponsored plans allow you to contribute a portion of each paycheck. You might even contribute money pretax; you’ll defer paying tax until you cash out your funds. Check if your company offers a match—sometimes they will contribute the same amount as you do, up to a certain percentage.

If you have access to a 401(k), contributing at least the full match amount is a good practice. However, even smaller contributions could make a significant difference.

Do you want to contribute to an individual retirement account?

An individual retirement account (IRA) could boost your savings. An IRA usually offers you more control over your investments and a wide range of investment strategies.

The two major types of individual retirement accounts are the traditional IRA and the Roth IRA. While the account types have several small differences, the most significant distinction for most people comes down to taxes:

You technically fund a traditional IRA with pre-tax dollars, as you can often deduct your contributions from your annual taxes. However, the IRS taxes money you withdraw during retirement as normal income. While a traditional IRA costs less now, it’s more expensive later. If you withdraw from a traditional IRA before you reach the minimum retirement age, you also owe a fee.
Your contributions to a Roth IRA aren’t deductible, so the accounts don’t come with any immediate tax benefits. However, money you withdraw from a Roth IRA during retirement is not subject to taxes. You can also withdraw from a Roth IRA at any time without penalties.

Navigating these differences isn’t necessarily straightforward. The choice that saves you money depends on your current and future tax rates. If you expect to have a higher tax rate in the future than you do now, then a Roth IRA may be the best fit. You could also contribute to both types of accounts. However, the IRS limits total IRA contributions.

Will you get Social Security benefits, and how much?

According to the Social Security Administration, most American workers qualify for Social Security benefits. You should receive benefits if you or your spouse have worked at least 10 years and paid Social Security taxes. However, the amount you receive in Social Security may vary.

The factors that influence your benefits include your age when you start withdrawing benefits and your income level.

If you delay your benefits up to age 70, you’ll maximize your monthly payments.
Social Security covers between 28% and 79% of your annual income before retirement; Social Security was never meant to be the sole source of income for retirees.
As of January 2025, the average monthly payment is around $1,976 according to SSA.gov.

Open a savings account

Have you maxed out your annual retirement account contributions? Do you want some additional security with no withdrawal penalties? Consider a high-yield savings account to supplement your retirement funds. Regular contributions to an account with a substantial interest rate could pay off when you start to cash out.

Did you know?

Discover offers a variety of tools to help you meet your financial needs, including a high-yield online savings account. See if a savings account with Discover is right for you.

The bottom line

Proactive saving now could help you enjoy your retirement in the years to come. A variety of retirement savings options could suit your unique circumstances and goals.

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