Imagine this: You wake up on a Tuesday morning, except instead of running to work you’re sitting on your porch sipping coffee and planning a visit with your grandchildren or signing up for that pottery workshop you’ve been fantasizing about. This is retirement as it’s supposed to be — a time of relaxation, not financial worry. But the truth is, a lot of people make it to retirement age and end up worrying about money instead of enjoying their golden years.
The good news? You want a financially secure retirement, but you don’t need to be a genius or have a six-figure income. It’s a matter of making intelligent uses of today that represent big payoffs tomorrow. Whether you’re just beginning your career, in the thick of your working years or approaching retirement, it is never too early or too late to get a grip on your financial future.
In this guide, we’ll delve into actionable, concrete steps anyone can take to create a retirement they actually look forward to. No jargon-filled finance-speak here — just solid advice that has been proven to help.
Why So Many People Aren’t Ready for Retirement
Before we start discussing solutions, let’s talk about the problem. New research suggests that nearly half of Americans have nothing saved for retirement. Even scarier? People everywhere feel this pinched of course, but lives are particularly precarious when public systems don’t support workers or cushion their retirement. Many who have saved still do not have close to enough to sustain themselves at anywhere near the lifestyle they enjoy as workers.
Here’s what goes wrong:
Waiting too long – Many wait until their 40s, 50s or beyond to start saving and lose out on decades of compound interest.
Not saving enough – Even if you can only contribute 3% of your paycheck, it’s becoming less and less acceptable.
Lifestyle inflation – As people make more money, they tend to spend more, which means there’s a smaller margin for saving.
The unexpected – Medical bills, home repairs or helping a family member can suck retirement accounts dry.
Longer life – People are living into their 90s now, so retirement savings may need to last 30+ years.
You’re in luck, because once you know these traps, there are ways to avoid them.
1. Begin Earlier Than You Think You Should
For retirement savings, time is your best friend. The sooner you begin the less money you really need to set aside per month. That’s thanks to something called compound interest — essentially, your money making money and then that money making more money.
Consider a simple case:
| Age When You Begin | Monthly Regular Deposits | Total Deposited @ Age 65 | Value at Age 65* |
|---|---|---|---|
| 25 | $300 | $144,000 | $529,000 |
| 35 | $300 | $108,000 | $244,000 |
| 45 | $300 | $72,000 | $111,000 |
Assumes 7% average annual return
Also observe how beginning only 10 years earlier increases your ultimate quantity by almost double? That’s the power of compounded growth. Save something — even if it’s only $50 or $100 a month when you’re young. You can always add more later.
2. Maximize Employer Matching Programs
If your employer has a matching retirement plan, you should be doing this first. And here’s why: employer matches are, quite literally, free money.
Here’s how it often goes: If you put in 6 percent of your salary to your 401(k), your employer will kick in that amount up to an additional 50 percent (or another 3 percent). That’s a 50% return on your investment right there, and the market hasn’t even done anything.
Say you make $50,000 a year:
- You’re putting in 6% = $3,000 annually
- Your company contributes 3% = $1,500 annually
- Grand total, entering your retirement = $4,500 a year
That $1,500 may not seem massive, but multiplied over 30 years with compound interest, that could mushroom into more than $140,000. And you didn’t have to do anything extra in order to earn it besides being part of the program.
Action step: Consult your HR department to see if they match and what their matching formula is, as long as you are contributing at least enough to receive the full match.
3. Diversify Your Retirement Accounts
Its eggs weren’t all in one basket. By having multiple kinds of retirement accounts, you have more flexibility and can take advantage of the tax breaks now, while potentially maintaining some in your favor after retirement.
Traditional 401(k) or IRA: With these accounts, you contribute pre-tax dollars (reducing your current taxes), then the money grows tax-free until you take it out in retirement. You then pay taxes on withdrawals.
Roth 401(k) or Roth IRA — You stock this account with post-tax dollars (you get no deduction now), but then the money grows totally tax-free, and you pay nothing in taxes upon withdrawal in retirement.
Health Savings Account (HSA) – For anyone with a high-deductible health plan, an HSA is a secret retirement weapon. Contributions are tax deductible, growth is tax free and you can withdraw money for medical costs tax free. After 65, you can use it for anything without penalty.
Taxable Investment Accounts — You don’t get any tax advantages here, but you also won’t have to worry about withdrawal limits or required minimum distributions.
Here’s a smart approach to consider: If you’re young and in a lower tax bracket, focus on Roth accounts. If you are in your peak earning years and therefore subject to a higher tax rate, traditional accounts may help you save more on taxes. It would be best to have a mix of both so that you can manage withdrawals strategically once in retirement.
4. Increase Your Contributions Every Year
One of the simplest money moves you can make is to step up your retirement contributions every time you receive a raise. When most people receive a raise, they increase their spending: nice car, larger apartment or fancier dinner. But consider this brief alternative: break your raise into two parts, with some going toward lifestyle improvements and the remainder toward retirement.
Let’s say you get a 4% raise:
- Allocate 2% to more of your own retirement contributions
- See the other 2% in your paycheck
You’re still getting the raise, but you’re turbocharging your retirement savings — and that’s a killer combination. Some 401(k) plans offer an “auto-escalation” option that will lift your contribution a percentage point each year. I turned this on and never thought of it again.
Here’s what it looks like if you start at 6% and increase by 1% each year:
| Year | Plan Contribution Rate | Monthly Amount (on $50K Salary) |
|---|---|---|
| 1 | 6% | $250 |
| 5 | 10% | $417 |
| 10 | 15% | $625 |
By slowly ramping up, you hardly feel the difference in your take-home pay, but your retirement account grows a lot faster.
5. Have More Than One Retirement Income Option
Counting on one stream of income in retirement is dangerous. The more spigots you have pouring money into your account, the cooler the retirement it will produce.
Social Security — It’s the cornerstone for most people in retirement, but typically it’s not sufficient to live on easily. The typical monthly Social Security check is about $1,900. Learn more about maximizing your Social Security benefits.
Employer pensions – These are increasingly rare, but if you have one, fantastic. Just don’t rely on it as your sole source.
Retirement account distributions – This represents the use of your personal savings.
Rental income — If you’re able to purchase a rental property, the monthly income from it can be significant in retirement.
Part-time job – A lot of retirees work part-time, not because they need the money but simply because they like to be active. The income is a nice bonus.
Investment income in dividends — With dividend-paying stocks or funds, you can generate some amount of growth which allows you to earn monthly income without selling your investments.
Annuities – These are insurance products that pay you a paycheck for life. They are not to everyone’s taste, but they can bring peace of mind.
Aim to have at least three to five different income streams and if one flops, you’re in less trouble.
6. Pay Off High-Interest Debt Before You Retire
Entering retirement with credit card debt, car loans or even a mortgage can quickly sap your savings. And here’s why it matters: If you’re earning 7 percent in your retirement account but paying an 18 percent interest rate on credit card debt, you are losing money.
Order of debt payment priority:
- Credit card & personal loans (highest interest costs)
- Auto loans
- Student loans
- Mortgage (if possible)
Some people are ambivalent about whether to pay off the mortgage before retiring. There isn’t a one-size-fits-all solution, but here’s something to consider: A paid-off home is one less monthly payment that you need to cover with your retirement income. That can shave hundreds of thousands of dollars from the amount you need to amass.
Let’s look at the numbers:
If your mortgage is $1,500 a month, that’s $18,000 a year. To generate that safely in retirement (with the 4% withdrawal rule), you need $450,000 saved for retirement. If you pay off your mortgage in retirement, you can squeak by with $450,000 less in savings.
7. Plan for Healthcare Costs
Healthcare is one of the largest expenses in retirement, and it’s one that so many people are caught off guard by. The typical couple retiring at 65 will need to think twice about spending more than $300,000 in total on health care throughout retirement — and that’s not even including long-term care.
Medicare kicks in at age 65, but it isn’t all-inclusive:
- There are premiums, deductibles and copayments
- Dental care isn’t covered
- Vision care isn’t covered
- Many prescriptions require copays
Another large concern is long-term care. If you require assistance with activities of daily living, or need to move into an assisted living facility, for instance, Medicare covers very little. Long-term care insurance can offer one, but the coverage is costly. Your best age to buy it? In your 50s or, at the very latest, early 60s.
Health Savings Accounts (HSAs) are great for this. If you do not spend all of your HSA money each year, let the balance accumulate. Consider your HSA to be a healthcare retirement account. That money mentally rolls over year after year, grows tax-free and can be spent on medical expenses in retirement.
8. Do the Math on What You Really Need
There is no one-size-fits-all magic number. How much you need depends on:
- Your desired lifestyle
- Where you’ll live
- Your health
- Your hobbies and interests
- Whether you’ll travel
- Whether you’ll support family members
The 80% rule – Many experts say you’ll need 80% of your pre-retirement income to have the same standard of living. If you make $75,000 today, you might need $60,000 a year in retirement.
The 4% rule — This is a rule of thumb that you can take 4 percent from your retirement savings each year without running out of money. Under this guideline, if you wish to receive $60,000 per year, then you would need to have saved up $1.5 million ($60,000 ÷ 0.04 = $1,500,000).
And keep in mind, Social Security will pick up part of this. If you anticipate needing $2,000 a month from Social Security ($24,000 annually), your retirement savings only needs to make up the remaining $36,000 for an annual total of $60,000 — and that would equate to needing just $900,000 in savings.
Below is an easy retirement needs calculator:
| Annual Retirement Income Needed | Annual Social Security | Savings Needed | Spending (using 4% rule) |
|---|---|---|---|
| $40,000 | $24,000 | $16,000 | $400,000 |
| $60,000 | $24,000 | $36,000 | $900,000 |
| $80,000 | $24,000 | $56,000 | $1,400,000 |
9. Keep Your Hands Off Your Retirement Money Early
This may be the most vital rule: Keep your retirement accounts off-limits until you retire. Without fail, though, each dollar you take out too soon cuts deeply into your long-term assets.
If you take money out of a retirement account before you’re 59½:
- You pay a 10% penalty
- The withdrawal is subject to income taxes
- You forfeit all future growth on that money
Say you are 40 and tap your 401(k) for $10,000:
- You pay a $1,000 penalty
- You pay about $2,200 in tax (at a 22% tax bracket)
- You only get $6,800
- Not counting the $76,000+ which it would have grown to by retirement
Was it worth it? Almost never.
If you are struggling with money at the moment, this may not be your best move:
- Create an emergency fund in a basic savings account
- Get a personal loan (even with interest, it’s usually cheaper)
- Work out a payment plan for medical bills or other debt
- Cut expenses temporarily
10. Reevaluate Your Investment Strategy as You Get Older
When you’re younger, you can stomach more risk in your investments because you have time to make up the ground if markets turn against you. As you move toward retirement, you want to safeguard what you have built.
Rule of thumb: Your bond percentage should be roughly equal to your age.
- Age 30: 70% stocks, 30% bonds
- Age 50: 50% stocks, 50% bonds
- Age 70: 30% stocks, 70% bonds
This isn’t a hard and fast rule, but the idea is a good place to start. Stocks appreciate more over time but are more volatile. Bonds are steadier and compound more slowly. The less flexible, the closer you are to needing your money; so the more stability you want.
Many retirement accounts provide “target-date funds” that perform this function automatically. So for example, if you’re planning to retire at about 2045 overall, you’d choose a 2045 target-date fund — and then balances stocks and bonds automatically change as you get closer to that year.
11. Consider Downsizing and Location
Where you retire will greatly affect how much mileage you get out of your money. There is no income tax in some states. It’s far more expensive to live in some cities than others. Your biggest budget expense in retirement is usually on housing so the more you can optimize it the better.
How to lower housing costs in retirement:
- Move to a smaller home (less upkeep, cheaper bills)
- Relocate to a lower tax and cost of living state
- Be closer to family (can save on flights, and have some support)
- Retirement community (instant social network, many amenities included)
- Move to a university campus (“college-town” – cultural events/activities, generally more affordable, good medical treatment)
A pair that spends $4,000 a month in San Francisco would live just fine with $2,500 a month in some parts of North Carolina, Texas or Arizona. That’s a shortfall of $18,000 a year, or $450,000 less you’d need in retirement savings.
12. Keep Learning and Stay Flexible
The world of retirement is in constant flux. Social Security rules change. Tax laws change. Investment options evolve. Healthcare policies shift. The best you can do is keep a close eye on developments, and be ready to pivot when necessary.
Here are ways to stay ahead in the race for retirement planning:
- Regularly review your retirement accounts – At a minimum, check in on these every six months
- Sit down with a financial advisor every few years
- Read a few reliable personal finance blogs or books
- Leverage free financial education through your employer
- Revise your plan when significant life events occur (such as marriage, kids, career change or windfall)
Smart Money Moves for a Secure Retirement
Frequently Asked Questions
When should I begin saving for retirement?
The time to begin is now for everyone, no matter your age. The sooner you start, of course the better, to take full advantage of compounding growth over time — ideally in your 20s but even if you are not kicking off until your 40s or 50s. What matters is that you start as soon as possible.
How much should I have saved by 40?
A popular rule of thumb is the number-three method, which means three times your annual salary saved by the time you are 40. So earning $60,000 a year? Shoot for $180,000 in retirement savings. But don’t stress about falling behind—just ramp up your contributions going forward.
Should I pay down my mortgage or save for retirement?
Do both if you can, but first settle on your match from your employer (free money), and then work on the two goals in parallel. Even if you are within years of retirement, paying off your mortgage can meaningfully reduce needed retirement income.
Can I live off Social Security alone?
For most people, no. The average Social Security check is about $1,900 a month. Social Security is a foundation — not your entire retirement plan.
What if I’m starting late?
Don’t give up. Being so late will require you to save more aggressively (or work a few years longer than you otherwise might), but it’s still possible to build a good retirement if you’re getting such a late start. You might want to make extra catch-up contributions (permissible after you turn 50), cut costs and even plan on working part time in the early years of retirement.
How can I shield my retirement savings from inflation?
Even in retirement, you should hold some stocks: Historically, stock returns have outpaced inflation. By contrast, invest in Treasury Inflation-Protected Securities (TIPS), real estate investments and plan on annual increases in your withdrawal amounts.
Do I need a financial adviser?
A financial professional can be worth considering, especially as your finances become complicated or if you’re getting closer to retirement. Find a fee-only fiduciary adviser who is legally obligated to act in your best interest. A great many people do very well running their own retirement accounts, but professional advice can offer a comfort level that is hard to attain on one’s own.
What is the single biggest mistake that most people make when it comes to retirement planning?
Not beginning early enough and not saving on a regular basis. Many people also get the amount wrong and, equally important, how long they will live. Another big mistake is taking money out of retirement accounts early or stopping contributions when money gets tight.
Your Retirement Starts Today
It’s not about making some big one-time decision; it’s about making dozens of small, smart decisions over the course of many years. Begin where you are, use what you have, do what you can. Every dollar you save today is another one working for the future version of yourself.
It’s not rocket science what we’ve covered here, but it does take action (repeatedly). Open that retirement account. Increase your contributions. Pay down debt. Plan for healthcare. These are not scintillating tasks, but together, they form the foundation on which financial freedom in your later years is built.
Consider what you want your retirement to look like. Do you want to travel? Spend time with family? Pursue hobbies? Support causes you care about? And it is certainly possible to achieve those dreams — if you plan and discipline yourself today.
And remember, retirement security is not only for the rich or the fortunate. It is open to anyone who can make it a priority and work a plan. You don’t have to be perfect — you just need to be consistent.
Start today. Every single smart money move you make will be rewarded by your future self. The retirement you dream of is in your reach — one paycheck, one contribution, one smart financial decision at a time. So take charge, stay committed and see your retirement dreams come to life.
