Saving for Retirement: 5 Steps to Invest in Yourself

Lidia Staron, author at OpenLoans
Lidia Staron   Head of Content
Personal Finance
I enjoy navigating people through important financial decisions.

How to save for retirement.

Request a Loan Today*
By clicking “Get Started”, I consent and agree to the Privacy Policy and Terms of Site Use.
*By filling out the form above, you will be routed to’s loan request form.

When you’re young, saving for retirement isn’t something that crosses your mind. After all, you only live once. Your priority is to experience life as much as you can. Of course, it doesn’t help that there are no classes in high school and college that talk about the importance of a 401(k) or IRAs (Individual Retirement Accounts). Unfortunately, some of us figure out too late that saving for retirement needs to begin while you’re young, not just a couple of decades shy of you stopping work completely. The good news is that whether you’re in your twenties, thirties, forties, or even fifties, it’s never too late to get your retirement plan going. If you’re thinking about starting your nest egg today, we’ve got several tips to get you going.

How Much Should I Save for Retirement?

Good question. The typical answer to this question is "as much as you can." The general guideline that a lot of financial experts give is 15 percent of your income should go to your retirement savings. And that you should start while you're in your 20s. However, that doesn't give you a clear target to aim for, does it?

If you want a more specific number, here's one for you. According to the Age Wave/Merrill Lynch's report "Finances in Retirement: New Challenges, New Solutions," the average cost of retirement is $738,400. Based on the four percent rule guide, this gives you around $30,000 of income during the first year of your retirement. You can add your Social Security benefit and any other income sources you expect to have when you retire. Of course, this is just the average cost so yours may be more or less. To make a more precise estimate, you need to calculate how much you will need in order to live comfortably.

Calculating your possible future expenses means taking a look at your current expenses and then estimating how much they will cost you when you retire. For example, you can expect your health care costs to rise years from now. Hopefully, your mortgage should be paid off by then, so you don't need to include that. You can use several online calculators to get a ballpark figure. Take note that it is generally recommended that you save a lot more than what you’ll need so it might be better to overestimate your costs and make your goal a little larger than the average – say, $1 million.

Here’s a tip: if you don’t want to go through all those calculations, experts state that saving 20 percent of your annual income until you retire should get you enough savings to retire comfortably on.

Your Retirement Savings Plan

Creating a retirement savings plan that makes sense.

Now that you know how much to save for retirement, the next step is to start saving. There are several ways you can do that, depending on your current age, income, and expenses. Below are some tips to get you started.

1. Pay Down Debt.

The amount of debt you have will affect how much of your income you can use to save for your retirement. It's important that you make extra payments on any high-interest debts so that your money is applied to part of the principal, not just the interest.

2.  Match Your Employer's 401(k) Contributions.

If you're lucky enough that your employer wishes to match your 401(k) contributions, then you should make sure that your own contribution takes full advantage of that. For example, your employer states that it will match 50% of your contribution up to a maximum of 5% of your salary. If you earn $50,000 a year, contributing $2,500 to your retirement plan means that your employer will add $1250 to it as well. Technically, you're getting this money for free, so make sure you maximize your "gains."

3.  Open an IRA.

If your employer doesn't offer a 401(k) or another kind of tax-advantaged retirement savings program, you can get one on your own – the IRA. Even if you already have an employer-sponsored 401(k) plan, you can still get an IRA to increase your retirement savings.

An IRA enables you to save more money because it reduces your tax liabilities. Now, a traditional IRA gives you tax deductions from your income based on your contribution (on the year that the contribution was made). However, you do need to pay taxes on any gains when you withdraw your money. Then there's the Roth IRA. This one lets you invest post-tax income which means that you can't deduct these contributions from your income taxes. However, any gains you get from these contributions will no longer be taxed.  Any withdrawals you make from this account will also be tax-free.

4. Automate Your Savings.

When it comes to saving money, the most important rule is to pay yourself first. Before you take on any expenses, it's best to set aside money for your savings. This leaves you less likely to spend money on luxuries. It also makes it easier for you to learn how to live with less. You can automate your contributions to your IRA or set up automatic investments with a brokerage. You can also go old-school and just automatically withdraw your money to go to a traditional high-yield savings account.

5.  Sock Away any Extra Funds.

Don't get into the habit of spending your extra money on a new gadget or trip out of town. Instead, think of that money as an additional contribution to your retirement fund. At the very least, use 50 percent of that extra money from your recent salary increase, bonus, or tax refund to boost your savings.

How Long Will My Retirement Savings Last?

Technically, your retirement funds should last you until you die. Most experts recommend using the three-to-four percent rule which means only using three to four percent of your retirement funds per year. Of course, you also need to take into account inflation, dividends, taxes, etc. Based on historical market conditions, there's a high probability that you won't run out of money following this rule. In short, your money will more likely last than if you use five percent or higher.

If you really want your retirement savings to last, you should also learn how to be more efficient with your money. This means learning how to reduce costs and expenses. Saving money is usually more efficient than earning more money. Some tips on how to do this include:

  • Create a budget and stick with it.
  • Downsize your home.
  • Get a part-time job.
  • Cut your transportation costs.
  • Stay out of debt.
  • Buy an annuity to cover your essential expenses.
Advertiser Disclosure

The offers that appear on are from companies from which receives compensation. This compensation may impact how and where (including the order in which) offers are presented to consumers. does not make loan offers but instead pairs potential borrowers with lenders and lending partners. We are not a lender, do not make credit decisions, broker loans, or make short-term cash loans. We also do not charge fees to potential borrowers for our services and do not represent or endorse any particular participating lender or lending partner, service, or product. Submitting a request allows us to refer you to third-party lenders and lending partners and does not constitute approval for a loan. What you may be presented is not inclusive of all lenders/loan products and not all lenders will be able to make you an offer for a loan.