The sooner you start—the better

At whatever age you start saving, the important thing is to develop a realistic savings plan and stay the course. If you overestimate how much you can save, you may get discouraged and stop saving when times are tough. But if you underestimate, you may end up far short of your goal.

Here are four steps to help you determine how much you need to save:

• Estimate the total amount you'll need to retire.
• Calculate how much you need to save.
• Begin saving and investing today.
• Put your savings on automatic.

Estimate the total amount you'll need to retire.

How much money will you need to retire? One school of thought states that you'll need 75–80 percent of your pre-retirement income. Another suggests it's safer to assume you'll need roughly the same annual income you have before retirement.

Your retirement needs assessment (PDF) can help you estimate your retirement income goal based on your anticipated expenses.

Back to top

Calculate how much you need to save to reach your retirement goal.

The sooner you start saving, the smaller the percentage of your salary you'll need to save each year. Here are some general savings guidelines to help you determine your own savings goal.

As you can see, the savings challenge increases the longer you wait. But once you start, the same savings goal applies until you retire. And assuming your income grows over time, the dollar amount you save will automatically grow as well.

Back to top

Begin saving and investing today.

As your expenses go up and life gets more complex, it may be tempting to put saving for retirement toward the bottom of your list. But the surest way to reach your goal is to keep saving and investing. Think of it as paying yourself first, and it will be easier to put the dollars toward your retirement goal.

Looking for ways to save more? Try these ideas.

• Allocate a portion of any salary increase to your 401(k) and/or IRA. Consider increasing the amount you put in your 401(k) by 1 percent every time you receive a raise.
• Invest your tax refund in your IRA.
• Put other windfalls such as an inheritance or an annual bonus toward your retirement savings.
• If you have a side business or work for yourself, open a SEP IRA, an individual 401(k) or another small business plan to maximize your tax savings.
• If you're over 50, take advantage of catch-up contributions. You can contribute an extra $5,500 to your 401(k) or other employer-sponsored plan. You can also contribute an extra $1,000 yearly to your IRA.

Back to top

Put your savings on automatic.

• Contribute every year to both your employer-sponsored retirement plan and an IRA up to the maximum allowed.
• Consider setting up automatic monthly contributions to your IRA in the same way you make contributions to a 401(k).
• Keep your money working with an automatic investment plan that helps you take advantage of dollar-cost averaging.

Back to top