Guide to Retirement Planning

ByGeoff Williams

Updated: March 29, 2024

Edited byKatrina Raenell
Reviewed byDoug Milnes, CFA
ByGeoff Williams

Updated: March 29, 2024

Edited byKatrina Raenell
Reviewed byDoug Milnes, CFA

Advertising & Editorial Disclosure

Saving for retirement is a challenging task. You’re funding your future while paying for your present. Throw in inflation and possibly unexpected expenses, such as caring for ailing parents or losing a job, and retirement planning can be stressful.

But that’s why you should start planning for your retirement as early as possible because you’ll need time — and information. In other words, what you need is our guide to retirement planning.


How Much Should You Save for Retirement?

If you are worried that you don’t have enough saved for retirement, you are probably right. For instance, the investment management company T. Rowe Price suggests that by age 35, you have one to one and a half of a year’s salary saved for retirement. By age 50, it should be three to six times.

Don’t get discouraged if you are uncertain whether your retirement financial planning measures up. Giving up is a surefire way to not save enough for retirement. It is never too late to start saving and investing, and taking proactive steps toward your financial goals can make a significant difference in the long run.

How to Determine Retirement Savings Goals

Everybody’s lives and financial situations are different — there’s no universal set amount that everybody needs for retirement. But the guiding rule is to save as much as possible for retirement.

Consider following these steps if you’re trying to land on some retirement savings goals.


Make your retirement budget

It can start with your current expenses, including housing, transportation, food, entertainment and other costs. Then adjust your budgets up and down as you expect them to change (i.e., lower housing costs or higher travel costs).


Estimate your retirement income

To estimate your expected income during retirement, consider sources like Social Security, pensions or other plans that pay an income.


Calculate the annual gap

Once you have estimated your expenses and retirement income, calculate the additional income needed to fill the gap. If your budget is $60,000 per year and your Social Security only gives you $28,000, your gap is $32,000 annually.


Calculate your savings target

Use a retirement savings calculator to help you estimate the amount you need to have saved on the day of your retirement to ensure you can fill the gap amount and that your nest egg will last the rest of your life.


Determine how much you need to save

MoneyGeek’s compound interest calculator can help you calculate how much you need to save per month or year, considering your savings.


Evaluate your ability to save

If you cannot reasonably expect to save your target amount, you’ll need to make some decisions, such as postponing retirement or adjusting to a lower budget.


John is 45 years old and plans to retire at age 65. He estimates his current annual expenses to be $55,000 and expects to receive $25,000 per year in retirement income from Social Security and his employer's pension plan. After adjusting for changing expenses in retirement, he estimates his annual retirement expenses will be around $50,000 inclusive of taxes. He needs an additional $25,000 per year in retirement income to fill the gap.

Using a retirement calculator, he finds his target savings amount would be approximately $690,000. Using the compound interest calculator, he finds that with his existing $100,000 of retirement savings, he’ll need to save $13,000 per year for the next 20 years to reach his target savings.

At this point, John can assess whether he can save this much or make a different plan. He might adjust his retirement plan by working a few extra years or reducing his retirement expenses to reach his savings target to make it easier.

The Rule of Thumb for Retirement Saving

There are several tried-and-true strategies financial planners recommend following to save for retirement, such as the 50/15/5 rule, in which 50% of your income goes to regular bills and living expenses, 15% goes to your retirement and 5% goes to saving for short-term expenses (and 30% goes to everything else). But the important thing is having a plan after you have a retirement savings goal. Without a plan to follow, the goal is almost worthless.


When Is the Best Time to Start Saving for Retirement?

The best time to start saving for retirement is right now. More precisely, it’s when you have income and can spare to put some of it away for the future. If you can start when you’re young, such as in your 20s, you’ll have more time to save money and take advantage of your savings compounding than those who wait. However, plenty of people have started saving for retirement later in life; that’s nothing to be ashamed of. What can be the real pitfall is when you decide to defer your retirement savings over and over or give up entirely. So don’t kick the can down the road or decide that since you can’t save much, it’s not worth saving.

The Magic of Compounding for Retirement Savings

Compound interest means you’re earning interest on your interest. For instance, if you put aside $1,000 a year when you’re 20 and earning 6% interest, when you’re 21, you would have $1,060. And at age 22, you’ll earn 6% on $1,060. That adds up. Look at the table below, and let’s assume each person saves $200 a month toward retirement. You can see the advantage of starting earlier.


Try MoneyGeek’s Compound Interest Calculator

Compound interest calculators are invaluable for determining how much you can save toward retirement. If you invest a certain amount of money every month, the interest compounds over time. You'll see what we mean if you check out MoneyGeek’s free compound interest calculator below and plug in some of your numbers, such as how many years you’ll be saving for retirement.


Why Use Retirement Accounts and Which Ones To Consider

Once you’ve realized the power of compound interest in helping you reach your retirement goals, it’s time to discuss how qualified retirement accounts can help increase your savings. A qualified retirement account allows your investments and saving to grow tax-free. Paying taxes on your investment returns is a drag on how quickly your investments compound. As you might expect with compound interest, it adds up over time.

If you saved $100 monthly for 20 years at 5%, you’d have $41,103. But paying taxes on your investment returns of 20% would lower your return to $36,677. So by using a qualified retirement plan to enable tax-free growth, you’d get 12% more in this scenario. Unfortunately, retirement plans are all different and use some confusing acronyms (IRA), references to the tax code (401(k)), and the name of a former U.S. Senator (Roth IRA). Learn the pros and cons of each and what might best apply to your situation.

Situation 1:

You work for somebody else

Many employers offer retirement accounts as benefits for working for them — sometimes, matching contributions. For investment-minded people, a matching contribution from your employer is a 100% return on investment with no risk. If you’re considering investing in an employer-sponsored retirement plan, your options are typically determined by the employer. While the most common one is the 401(k), even if you have a 402(b) or 457(b), they all work similarly.

Situation 2:

You work for yourself

So you’re on your own. Nobody will help you set up a retirement account unless you hire a professional. That’s okay. You have options:

Situation 3:

You have your own business and employees

If you're an employer, you can choose whether or not you offer your full-time employees retirement benefits. If you own a small business and are willing, offering a rich retirement plan can be very beneficial. You can have some options aside from a 401(k) plan:


Tips on Maximizing Retirement Savings

Except in extreme cases, you can’t go wrong by putting anything away towards retirement, but you can fall short of your goals. Maximizing your savings is important to ensure you’ve got enough for your golden years. Here are several you may want to try:


Take advantage of tax deferral

Tax-deferred growth is crucial for maximizing retirement savings, allowing money to grow without taxes until withdrawal. This provides a significant advantage, resulting in faster growth than taxable accounts. Tax-deferred growth can accumulate over time, making a substantial difference in retirement savings. For instance, a $10,000 investment in a retirement account with a 7% average annual return for 30 years would yield $76,123 if taxed annually. However, if the earnings were tax-deferred, the investment would be worth $196,715. That's a difference of over $120,000.


Set it and forget it

MoneyGeek advises you to set up automatic contributions to your retirement account(s). If you manually put money in a retirement account every month, you choose whether to pay for your future or the bills now. So take psychology, or behavioral finance, out of the equation and automate your actions. If you take the choice away from you and make it automatic with banking technology, your odds of saving every month, every year, become that much more significant.


Look at your retirement accounts every six months

Yes, we just told you to forget about your retirement accounts; you should do a routine financial check and look at how your investments are doing. Sometimes the investment offerings change, which may prompt you to adjust or change your portfolio. It might motivate you to spend more money on your retirement as well.


Try to push yourself towards putting away more

The fastest way to double your retirement savings, especially early on, isn’t by investing smartly. It’s saving more. While it's important to prioritize saving for retirement, it's also essential to strike a balance and not go overboard. Always pay your current expenses first. You can still enjoy your life and save for other goals, such as a vacation or buying a home. Ultimately, balancing enjoying the present and saving for the future is important.


Learn everything you can about your retirement accounts

For instance, if you have a 401(k) with an employer, you probably have to work there for a certain amount of years before your money is considered “vested.” In other words, the matching benefits that an employer gives you may not be yours if you don’t stay on the job long. Granted, if you hate a job, life is short, and if you’re going to be happy elsewhere, maybe you should quit. But you’d first want to know if you were close to having your investments fully vested, right? Bottom line: the more you know about your retirement accounts, the more you can avoid making costly mistakes.


How to Save for Retirement at Different Stages of Life

When you start saving for retirement in your life matters a lot. Each decade of your life will have financial challenges regarding financial planning. If you start early, you’ll be able to capitalize on compound interest in a way that you simply can’t when you’re 10 or fewer years away from retirement. If you start young, you might also be able to put the brakes on saving for retirement. For example, when an emergency happens, like you lose your job and you can’t afford to put anything away. If you keep waiting, however, not saving for retirement becomes an emergency.

We’ll examine the various life stages and discuss what you may want to consider about retirement.

Starting Retirement Savings in Your 20s

This is the time in your life to start developing good financial habits. If you don’t, bad financial habits will set in. You’re only human.


Starting Retirement Saving in Your 30s

For many, this is the decade of buying a house or having kids. If you haven’t developed good financial habits, like saving for retirement, this is the time to start getting serious about it.


Starting Retirement Saving in Your 40s

If you haven’t started saving for retirement, it’s not too late. But the midnight hour is at hand. If you have been saving, keep building on what you’ve been doing.


Starting Retirement Saving in Your 50s

With luck, you’ve been saving for retirement and envision a soft landing when you retire. If you can’t picture that, it’s worth putting away whatever you can.


Saving Once You Reach Retirement

If you’re like most retirees, saving doesn’t end once you are retired. Although at this point, it may be more of a process of managing money and keeping costs low.


Additional Resources

If you’re still looking for inspiration or insight into saving for retirement, here’s the good news. There is no shortage of resources available for you to contact which can provide support. Here are some:

  • American Retirement Association: On this nonprofit’s website, you will find thought-provoking articles facing today’s retirees.
  • Let's Make a Plan: It's a nonprofit website designed to help match people with certified financial planners.
  • It’s a clearinghouse of federally-funded research and reports about Americans’ finances. Go to “life events,” where you’ll find a lot of booklets on retirement.
  • Retirement Planning: This is a saving-for-retirement resource page offered by the Association of International Certified Professional Accountants. If anyone can teach you how to save for retirement, it's probably these professionals.
  • Retirement Savings Plans: The University of Michigan has many links and information on saving for retirement.
  • Social Security in retirement web page: This is a web page on the Social Security website. The entire website may be helpful, but this is a good place to start.
  • "Taking the Mystery Out of Retirement Planning:" A helpful e-book guide from the Department of Labor. It offers retirement budgeting worksheets, among other helpful information.
  • The Consumer Financial Protection Bureau: A federal agency with many excellent resources for helping Americans with their finances. Not surprisingly, they have a “planning for retirement” web page.
  • "Top 10 Ways to Prepare for Retirement:" A Department of Labor brochure offering 10 ways to get ready to retire, essentially acting as a road map for retiring.
  • Type of Retirement Plans: The Internal Revenue Service offers a long list of the types of retirement plans and how they affect your taxes.
  • A federal web portal designed to give virtually any information Americans seek. Their “retirement” section offers a lot of suggestions on how to better save for retirement.

About Geoff Williams

Geoff Williams headshot

Geoff Williams has been a personal finance journalist since around the time of the Great Recession of 2008. He's been writing professionally since the 1990s about a variety of topics, including personal finance, credit cards and loans.

Williams is also the author of several books, including "Washed Away: How the Great Flood of 1913, America's Most Widespread Natural Disaster, Terrorized a Nation and Changed It Forever" and "C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America."

Born in Columbus, Williams now lives in Loveland, Ohio, with his two teenage daughters.