Retirement savings strategies for every age

Key takeaways:

• Your income and your needs change over time, and so should the way in which you save for retirement.
• It’s never too late to save, but your savings strategies depend on how close you are to retiring.
• Even if retirement is decades away, there are things you can do now that will put you miles ahead when the big day comes.

How you earn and how you spend money over your lifetime varies, so it’s natural that how you save for retirement should shift over time as well.

When you’re just starting out, you may be saving to buy a house, start a family, or pay off college loans. Later, you may be looking to build a college savings fund for your family or pay for a wedding. There’s a lot of competition for your money. But even though long-term planning might feel daunting, don’t get so overwhelmed that you do nothing at all. By setting goals and checking in against those goals along the way, you’ll set yourself up for success in your golden years.

Here are some tips for retirement savings strategies as you go through life.

Under age 35

Time is on your side here because you can take full advantage of the power of compound interest during this period of your life. Even though you probably have a lot of other expenses, this is one of the best times to save because your money will have more time to grow. Plus, when you’re young, you can invest with more risk, because you have time for the market to recover before you need your money.

5 Things to do

1. As soon as you start working, automate your savings. Set a goal for yourself—try to save at least 10 to 15 percent of your take-home pay or have a full years’ salary saved by the time you’ve reached 30.
2. Set up a separate emergency fund so you’re not tempted to tap into your retirement savings if you run into financial trouble.
3. Even though it might seem too early, now is a good time to choose a financial professional. This person can help you set goals and savings targets, and make sure you’re starting out on the right track.
4. If your employer offers a 401(k) or 403(b) retirement savings plan, do everything you can to take full advantage of matching contributions. If you don’t have access to this type of plan, consider investing in a Roth or traditional IRA.
5. You may want to consider investing in a 20- or 30-year term life insurance policy. Your annual premium will be much lower if you get the policy when you’re young.

Between ages 35-50

Here’s where things get interesting. During this period, your income will likely start increasing, but often, so does your debt. Mortgages, vacation homes, new cars… things that once seemed like luxuries may now feel like necessities. But stay on track with your savings. Avoid the temptation to spend everything you make, something called lifestyle creep or lifestyle inflation, and continue your commitment to maximizing your contributions to retirement savings.

5 Things to do

1. Avoid lifestyle creep; be realistic in your spending and maximize your savings. You can still take advantage of compounding interest.
2. Contribute the maximum amount you can to your 401(k) or 403(b) plan; consider saving in a Roth or traditional IRA as well.
3. Meet with your financial professional at least once a year, to make sure your savings are on track.
4. Make sure to diversify your investments. It’s still okay to have your portfolio contain riskier investments, but your asset allocation should begin to shift to include some more conservative options as you get older.
5. Check the Social Security Quick Calculatorⁱ to see what you might be able to expect in Social Security based on your earnings history. Compare the monthly payment at different retirement ages to see how it impacts you and keep these numbers in mind as you choose your retirement age.

Age 50 and beyond

For most people, these are your peak earning years, so make the most of them and contribute as much as you can towards your retirement savings. This is also when you’ll begin to consider what you want your retirement to look like and make sure you’re on track to make it work.

The decision of when to retire is a big one. If, as you near retirement, your savings aren’t where they need to be, consider working for a few extra years.

5 Things to do

1. Do your best to pay down your debt. Many people set a goal of being mortgage- and debt-free before they retire. If you decide to sell your house and downsize after the kids move out, consider moving those home sale proceeds into your retirement savings.
2. Take advantage of the opportunity for catch-up contributions and make additional payments to your 401(k), 403(b), and IRA as you are allowed.
3. Don’t forget to set aside money for health insurance if you want to retire before you’re eligible for Medicare.
4. You’ll want to meet with your financial professional more frequently—twice a year perhaps, as you near retirement. Your asset allocation will likely continue to change, to decrease the risk in your investment portfolio and shift your investments to more conservative options.
5. Consider your need for long-term care insurance.

Final thoughts

You’ve probably noticed a few common threads in this list of recommendations.

• Save early, save regularly, and save as much as you can each year.
• Begin working with a financial professional earlier than you think you need to. Then, be sure to take advantage of their expertise and meet with them regularly—at least once a year but more often as you near retirement, to make sure you’re on track.
• Your asset allocation—the way in which you mix and match your investments among stocks, bonds, and other options—should change over time. Your financial professional can help you here.
• Don’t forget about things like life or long-term care insurance.

If you’re under age 35, retirement probably seems like a long way away. It may still not even feel real in your 50s. But it’s never too early, and it’s never too late to save—it’s just your approach that should change over time. And with steady saving over the years, you can retire with confidence.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.