Retirement Savings: Strategies by Age

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What we'll cover:

  • Start with the hardest part: figuring out your number.
  • In your 20s: Aim to save 10-15% of your income, pay down debt, budget and live within your means.
  • In your 30s: Keep up those good habits, avoid lifestyle creep and think about other expenses.
  • In your 40s: Prioritize saving for yourself, picture what retirement looks like.
  • In your 50s+: Nail down the details and think about how you’ll turn your savings into income.

Saving for retirement. We all know we should make it a priority and that the earlier we start the better. It’s not rocket science, and in fact, the basic principles (the above being two of them) are pretty straightforward.

The challenge is that saving for the future can feel so distant – life gets in the way, so saving takes a back seat. But no matter your age, life stage, or the many things you’re juggling, saving for your future should always be a top priority. And just because it’s important doesn’t mean it needs to be difficult. A lot of the fundamentals covered in this article are simple and more importantly, achievable.

With a little math and a lot of discipline, you can set yourself up for a comfortable future – one that eventually won’t feel so distant.

Here are some retirement savings strategies for different age groups broken down by things to do, things to know about and some bonus points if you’re up for the challenge.

A note about this: this is a fairly comprehensive list and there may be times where you feel like you’re behind or aren’t doing enough. That’s okay. The main thing is to do what you can given your circumstances. Another note: this is general guidance. When it comes to your money and investing, it’s always a good idea to do your own research and consult a financial advisor if you have one. 

Start here: determine how much you’ll need for retirement

This is probably the hardest and most daunting part because there are so many unknowns. You don’t know how long you’ll live. You don’t necessarily know when you’ll retire – even if you have a target age, it may come sooner or later than you think. You don’t know what sort of healthcare costs you or your loved ones might incur. Your location and lifestyle will impact this number. And so on. Point is: you just don’t know, and not knowing is scary.

So what do you do? There are several retirement planning calculators out there that will try and factor in some of the variables (retirement location, lifestyle, wage inflation, etc.). There’s also a basic rule of thumb that you’ll need 80 – 100% of your pre-retirement income each year once you retire. In other words, once you retire, you’ll need to have access to 80-100% of what you made immediately prior to retiring.

Going with this rule, let’s say you retire at 65 with a $150,000 annual income. For this example, let’s use 90% as the percentage of your income you’ll need in retirement. Take that $150,000, multiply it by 0.90, and $135,000 is the annual income you’ll need in retirement. That’s well over $3 million if you live to 90. 

Whatever you do, don’t just wing it and hope that you’re saving enough.

So not only is calculating this number scary, but once you get to a number, that number makes your stomach churn. But keep reading, because you don’t want to just ignore the big, scary costs of retirement.

Do some research, crunch your own numbers and figure out a ballpark goal. Even a range is fine, but having some real, actual numbers is a critical first step. Whatever you do, don’t just wing it and hope that you’re saving enough. 

Saving for retirement in your 20s

Start by establishing good habits and making retirement a priority. How you manage your finances now will shape much of how you handle finances in your future, and you want to build off a solid foundation. Time is on your side, and the more you save early on, the more compound interest will work in your favor.

Maybe this section is for your kids (or grandkids), and if so, help them by reinforcing good habits. 

Things to do:

  • Create a budget and live within your means.
  • Within your budget, aim to save 10 – 15% of your income for retirement. If you can’t do this, just start by saving what you can. Even saving a small percentage will go a long way.
  • Establish an emergency fund.
  • Try to pay off your debt. Start with paying down any high-interest debt. If there are other accounts that you can easily pay off, try tackling those too.

Reaching your goal starts with saving for it.

Things to know about: 

Your retirement plan options. Understand the basic account types, including the benefits, tax implications and contribution limits for each. Here’s a quick rundown:

  • 401(k) – a retirement plan offered through an employer. If you’re working for a company that offers a 401(k) match – meaning for every contribution you make up to certain point, they will also contribute some amount – take advantage of this (it’s essentially free money).

If your employer doesn’t offer a 401(k), consider an IRA. Here are the main types:

  • Traditional IRA – this is an individual retirement account (hence, IRA) that offers tax advantages. Your contributions may be tax-deductible, and your money grows tax-deferred until you withdraw it in retirement. The 2019 contribution limit for IRAs is $6,000.
  • Roth IRA – this is also an IRA (with the same $6,000 contribution limit), but you pay taxes on your contributions now and your withdrawals in retirement are tax-free.
  • If you’re a business owner or work for yourself, you may want to look into a SEP IRA. The contribution limits for these are usually higher.

The fundamentals of investing. Make sure your portfolio has the right mix of aggressive (stocks) and conservative (bonds) investments. When you’re young, you probably want to be investing more aggressively (meaning your portfolio should be mostly stocks) because you’re likely far away from retirement. As you get older, you’ll probably start to gradually shift your portfolio to be more conservative. 

Bonus points:

  • Automate your contributions through payroll deductions or scheduled transfers.
  • Figure out if you can enroll in auto contribution increases so that you can reach that 10 – 15% goal.
  • Consider target date funds. These let you set a target retirement date (e.g., 2060) and will automatically rebalance your mix of stocks and bonds to align with that date.
  • Consider life insurance. Even if no one is financially dependent on you now, buying life insurance when you’re young and healthy is generally less expensive than waiting to buy when your older, when your premiums may be higher. 

Saving for retirement in your 30s

By this point in your life, you’re likely earning more than you were in your 20s – and go you! It’s also the point in your life where your obligations – financial and otherwise – can start to expand very quickly.

It’s easy to spend a ton of money trying to maintain a certain lifestyle, but don’t let the allure of keeping up with the Joneses (or what you see on Instagram) tempt you from saving for your future. Make sure saving for retirement remains a top priority.

If you’re behind (or just getting started): First, don’t panic. Even if you start now, compound interest can still work in your favor, and can help you reach your retirement goals. Make sure you understand the fundamentals covered above and then set aside a greater percentage of your salary for saving. 

"But no matter your age, life stage, or the many things you’re juggling, saving for your future should always be a top priority."

Things to do:

  • Revisit your budget with big life changes – marriage, mortgage, kids – and adjust accordingly.
  • Avoid lifestyle inflation and getting into debt.
  • Make sure you’ve built a solid emergency fund, and keep adding to it.
  • Ramp up your 401(k) contributions, ideally to the maximum allowed. The maximum for 2019 is $19,000.
  • If you can’t contribute the maximum, gradually start to increase your contributions over time (look into auto increases). Even small increases can make a big difference. 
  • If you’re already contributing the maximum your 401(k), consider an IRA (more on those above).
  • If you change jobs, don’t cash out of your 401(k) – you’ll pay hefty fees. Consider rolling it over to an IRA instead. 

Things to know about: 

  • 529 plans. These can be a good option for saving for your kids’ college education. 529s are college savings plans that typically come with tax-advantages. The money you put in grows tax-free and can potentially help soften the blow of an expensive education. Do some research on the plan details and contribution limits, which vary by state.
  • IRAs. These can be an additional way to add to your retirement savings if you’re already maxing out your 401(k). If your income means you don’t qualify for a Roth (more on those above), look into a Backdoor Roth IRA.

Bonus point:

  • Explore other ways to make your money work for you. If you’re maxing out your 401(k) and IRA, consider putting additional funds into savings accounts – such as a high-yield savings account or a certificate of deposit– or into a traditional brokerage account. Both options will help your money grow, but make sure you pick the right option based on what you want that money to do (aka your financial goals).

Saving for retirement in your 40s

Your responsibilities in your 20s and 30s probably seem like a cakewalk once you hit 40. For some in this age group, you might be in the oh-so-stressful position of having to take care of both your own children and your aging parents. And when you’re taking care of everyone else, it’s easy to neglect taking care of yourself – but try your best not to.

If you’ve built good habits and have your finances on auto-pilot, keep those habits in check and don’t touch a thing. If you haven’t, now might be the time to start so that you can set it and forget it. It’ll make it easier for you to save, and it’ll be one less thing for you to worry about.

If you’re behind (or just getting started): Know that you’re not alone. According to the Fed’s 2018 Report on the Economic Well-Being of U.S. Households, a quarter of non-retired adults indicate they have no retirement savings, and 44 percent say their savings is not on track. If you’re in the same boat, take a hard look at your expenses and figure out if there are places you can trim.

If cutting your budget only does so much, think about ways you could increase your earnings – ask for a raise, look for a higher paying job or consider another income stream (rental properties, side gigs, etc.).

"With a little math and a lot of discipline, you can set yourself up for a comfortable future."

Things to do:

  • Continue to do all the things you did in your 30s – especially staying out of debt.
  • Don’t let new costs, like paying for your kids’ college education, be an excuse for borrowing from your 401(k).
  • Take a broad view of your overall financial picture. Look beyond your current 401(k) to other investments, like company stock, or retirement savings from previous employers.
  • Start to think about what your retirement looks like – consider things like your health, where you want to live, what type of support you plan on providing for your family, and how you want to spend your time. If working longer is part of your plan, think about how that impacts your finances.

Things to know about: 

  • IRS rules. These are inherently complicated, but it helps to know some of the basic rules and tax implications that apply to your retirement plans.
  • Life and disability insurance. Both can help financially protect your family in the event that something happens to you and you are no longer able to provide for them. Make sure you understand the details of your plan and that you’re appropriately covered.
  • Beneficiaries. You can have beneficiaries for the multiple plans you have in place – your 401(k), IRA, life insurance, etc. Know the rules for each, and make sure you have your beneficiaries listed. 

Bonus points:

  • Consider opening a Health Savings Account (HSA). HSAs are tax-advantage savings accounts that can help cover qualified medical costs.
  • If you’re already maxing out your own retirement contributions, think about setting up an IRA for your kids. As long as your child has earned income (be it babysitting or lifeguarding), either you or your child can contribute to that IRA. Compound interest can do wonders here.

Saving for retirement in your 50s (and beyond)

Retirement probably doesn’t feel so distant now that you’re in the homestretch. And while you might still have a ton of priorities you’re juggling, keep focusing on your future. Your perspective on it will gradually start shifting from building your savings to accessing your savings. Of course your money should continue to work for you, but as your retirement age inches closer, you’ll need to figure out how to live off your nest egg.

If you’re behind (or just getting started): Take a deep breath. Your situation isn’t hopeless, but it’s probably a serious wake up call. Be realistic about your retirement goals and when you plan on retiring. It’s possible that you may need to work longer to meet those goals. The most important thing you need to do is start saving more.

Things to do:

  • Really think about your retirement income needs. Figure out how much you have saved in total, know where your money is going now, and be realistic about what your future looks like.
  • Factor in your health, medical costs (including the unexpected ones) and any healthcare savings you have.
  • Pay down debt. The big one here is likely your mortgage – do what you can to pay it off, so you can put that money toward retirement instead.
  • Take advantage of catch-up contributions. Once you turn 50, the IRS allows you to contribute an additional amount to your 401(k). In 2019, that amount is $6,000.

Things to know about: 

  • Withdrawal strategies and required minimum distributions. Do your own research on these, or talk to your financial advisor to understand how you’ll be “paid” in retirement.
  • Social Security benefits. Understand the details and consider delaying Social Security until 66, when you can take advantage of the full benefits. 

Bonus points:

  • Once you’ve made it to retirement, enjoy yourself. Permanently turn off your alarm and take a vacation.
  • And then share your wisdom with your kids and grandkids so they can master their retirement as well. 

A timeless strategy: figure out your number, then save…and keep saving

Remember: no matter your age, start by calculating a *general estimate* of your retirement needs. Then save accordingly, evolving your strategy as you age.

Retirement can be nearly a third of your life, and you probably want to enjoy it. If you spend as much time financially preparing for retirement as you do dreaming about what you’ll do with it – be it traveling the world or playing 18 holes a day – you’ll head into your golden years with confidence and a (hopefully) healthy nest egg.

Reaching your goal starts with saving for it.

This article is for informational purposes only and is not a substitute for individualized professional advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.  Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.

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