Saving for retirement is one of the most important financial priorities you will ever have. The earlier you start, the more time compound interest has to work. But even if you are starting late, there are steps you can take to build a meaningful nest egg. This guide walks through how to approach retirement savings at any stage of life.
Start With Your Employer’s 401(k)
If your employer offers a 401(k) plan, this is usually the best first step. A 401(k) lets you contribute pre-tax dollars directly from your paycheck, which reduces your taxable income today. Many employers match a percentage of your contributions, and that match is essentially free money.
Contribute at least enough to capture the full employer match before doing anything else. If your employer matches 100% of contributions up to 4% of your salary and you earn $60,000, that is $2,400 per year in free money you will miss if you do not contribute enough.
401(k) Contribution Limits for 2026
For 2026, you can contribute up to $23,500 to a traditional or Roth 401(k). If you are 50 or older, you can make catch-up contributions of an additional $7,500, bringing the total to $31,000.
Open an IRA
After capturing your employer match, the next step for most people is to open an IRA. An IRA (Individual Retirement Account) gives you more investment choices than most 401(k) plans and often has lower fees.
Roth IRA vs. Traditional IRA
The main difference is when you pay taxes. With a Roth IRA, you contribute after-tax dollars and withdrawals in retirement are tax-free. With a traditional IRA, contributions may be tax-deductible and you pay taxes when you withdraw in retirement.
A Roth IRA is generally better if you expect to be in a higher tax bracket in retirement. A traditional IRA is better if you expect your tax rate to be lower in retirement. Many financial advisors recommend a Roth IRA for younger workers who are still in lower income brackets.
For 2026, the IRA contribution limit is $7,000, or $8,000 if you are 50 or older.
How Much Do You Need to Retire?
A commonly used rule of thumb is the 25x rule: you need roughly 25 times your annual retirement expenses saved to retire comfortably. This is based on the 4% safe withdrawal rate, which suggests you can withdraw 4% of your portfolio per year without running out of money over a 30-year retirement.
If you expect to spend $50,000 per year in retirement, you need about $1.25 million saved. Social Security and any pensions will reduce the amount you need to withdraw from your portfolio.
How to Invest Your Retirement Savings
Once you have your retirement accounts set up, you need to invest the money. Leaving it in cash or a money market fund means it will barely keep up with inflation.
Asset Allocation
The right mix of stocks and bonds depends on your age and risk tolerance. A general guideline is to subtract your age from 110 to find your stock allocation. At 30, you might hold 80% stocks and 20% bonds. At 60, you might hold 50% stocks and 50% bonds.
Target-date funds make this automatic. If you plan to retire around 2055, you buy a 2055 target-date fund and it automatically shifts from aggressive to conservative as you approach retirement.
Choose Low-Cost Index Funds
High investment fees eat into your returns over decades. A fund with a 1% annual fee versus a 0.05% fee can cost you tens of thousands of dollars over a 30-year period. Stick with low-cost index funds or ETFs that track the broad market. Vanguard, Fidelity, and Schwab all offer excellent low-cost options.
Automate Your Contributions
The best retirement savings strategy is one you stick with. Set up automatic contributions so money moves to your retirement accounts before you have a chance to spend it. Even small, consistent contributions add up significantly over decades thanks to compound growth.
What If You Are Starting Late?
If you are in your 40s or 50s and feel behind on retirement savings, do not panic. The catch-up contribution provisions let you contribute significantly more once you turn 50. Focus on maximizing your contributions, cutting unnecessary expenses to save more, and potentially working a few extra years to let your savings grow.
Common Retirement Savings Mistakes
- Not starting early enough
- Failing to capture the full employer 401(k) match
- Cashing out a 401(k) when changing jobs instead of rolling it over
- Investing too conservatively when you still have decades to grow
- Forgetting to increase contributions as your income grows
The Bottom Line
Retirement savings does not require a complex strategy. Get the employer match, open a Roth IRA, invest in low-cost index funds, and automate your contributions. Increase the amount you save each time you get a raise. Time in the market is more valuable than timing the market.