How to save for retirement: What you need to know

Saving for retirement might not be top of mind in your 20s or 30s, but when thinking about long-term goals, one key reason you may want to get started early is ensuring control over your financial future once you retire and regular income comes to a stop. A retirement plan could help you prepare for ongoing expenses like housing, food, and medical care — even without monthly paychecks.

With many people living longer today, your retirement plan might need to cover more than 25 years. Without enough savings, there's a chance you could outlive your assets, potentially leading to greater dependency on others or reduced quality of life. Investing and saving early may give your money more time to grow and help offset inflation and rising healthcare costs through compound interest.

When thinking about how to start saving for retirement, you might be asking yourself how much you need. While there is no universal number for how much money you need to save to retire, there are a few benchmarks that might help. A general guideline may be aiming to save an annual income equal to about 70–80% of your pre-retirement salary, but factors including your desired lifestyle, income, and estimated healthcare costs can influence how much you actually need to save for retirement. To create a more accurate estimate for yourself, you might still want to consider that your needs may vary based on your expected retirement income and how you plan to spend your time.

When it comes to retirement savings, flexibility could be key. Different types of retirement accounts may offer unique tax advantages and benefits depending on your income, age, and employment status. 

Both employer-sponsored and individual accounts might play an important role in building a well-balanced retirement savings strategy. By strategically combining different account types, you could open up a wider range of investment choices and potentially boost your long-term savings outcome. Exploring all of your options may be one of the best ways to save for retirement.

Here are some common options to consider:

Employer-sponsored retirement savings plans, like a 401(k), allow eligible employees to contribute a portion of their earnings into a dedicated retirement account to grow their money through investments over time. If your job offers retirement benefits through a 401(k), it could be a valuable addition to your long-term savings approach.

Many employer-sponsored retirement plans include a match program, where contributions of up to 3% to 5% of your salary are matched at 50% to 100%, helping you grow your retirement income faster. After reaching that match limit, continuing contributions up to the annual maximum may further support long-term compound growth and steady future income in retirement.

For those without access to a 401(k) or similar workplace option, an Individual Retirement Account, or IRA, might offer another way to save money toward your long-term retirement goals. A traditional IRA is a type of tax-advantaged savings account designed to encourage people to start saving for retirement.

Contributions may be tax-deductible, potentially lowering your tax bill today, depending on your income and filing status, but contribution limits do apply. These accounts also use investments to grow your savings, and may fit into a broader investment plan and help support your retirement savings strategy.

Another important decision in retirement planning might involve choosing between a traditional or Roth account, which is available for IRAs and 401(k)s. 

The main difference between Roth and traditional options is when you pay taxes, as traditional accounts hold pre-tax contributions, allowing you to benefit from tax deductions now. With Roth IRAs and Roth 401(k)s, you make post-tax contributions, but qualifying withdrawals in retirement are tax-free. The choice often relates to factors such as whether you are expecting higher income in retirement. Some people hold both types, as it may provide more flexibility and help support long-term planning.

While not as common today, pension plans can still be part of a well-rounded retirement plan, and might be an option for those working in government or unionized sectors. These employer-sponsored programs offer consistent retirement income that’s typically based on your salary and years of service. Because this type of retirement savings strategy requires no active saving, it may provide an added layer of income security alongside other personal investments.

In addition to retirement accounts, several other savings options can help support your long-term goals. Here are a few to consider:

• High-yield savings accounts: High-yield savings accounts often offer higher interest rates than standard savings accounts, giving you the option to keep your money accessible while still earning some return. They might help serve as a short-term savings vehicle or emergency fund that can help complement your retirement savings strategy.

• Certificates of deposit (CDs): CDs provide a fixed interest rate over a set term, offering predictable returns. While they may be less flexible (since making withdrawals before maturity may result in fees), they can serve as an option to supplement your savings plan, especially if you don’t need immediate access to the funds.

• Taxable brokerage accounts: These accounts allow you to invest in a wide range of assets without the contribution limits of retirement accounts. Though they lack tax advantages, they may offer more flexibility and can be used to diversify your retirement savings. However, it is important to be aware of investment risks and possible losses.

• Diversified long-term saving strategies: Combining different account types and investment vehicles can help balance risk and reward. A diversified approach may improve your chances of meeting retirement goals, especially over multi-decade time horizons.

Even the smallest savings habits might build momentum over time. Regular contributions to your retirement account, no matter how minor, could help to gradually support your future goals. If your employer offers a match, making the most of it may add more money to your overall retirement savings plan.

You might also want to consider combining different account types to help balance investment risk and allow for greater flexibility. As your age or financial circumstances shift, reviewing your retirement plan from time to time, and shifting your asset allocation as you near retirement, can help ensure it still aligns with what matters most to you.

It might be easy to assume that saving for retirement just means putting cash aside over time, but a few common missteps could impact your long-term stability. 

Some errors to avoid when you start saving for retirement include: 

• Waiting too long to build retirement savings: This could limit how much your money grows over time through compounding. 

• Underestimating future income needs: Underestimating your retirement income may lead to shortfalls once expenses begin to rise.

• Relying entirely on a single plan: Having only one plan might make you more vulnerable if personal or market conditions shift, which can greatly affect your investments. Having a diversified portfolio and different sources of retirement income might help you better balance your risks. 

• Not accounting for inflation: This could potentially reduce the purchasing power of your savings over time.

As you think about what’s ahead, saving for retirement may involve using different types of accounts and strategies that reflect your timeline, income needs, and long-term goals. A thoughtful retirement plan could combine several retirement account types to support financial security and help create predictable retirement income when the time comes.

Getting an early start might be one of the best ways to save for retirement, while diversifying your savings approach could help reduce risk and improve outcomes. Understanding how to save money for retirement may give you more control and confidence as you plan for life beyond work.

If you are looking for a savings account to supplement your retirement savings, Raisin is here to help. The Raisin marketplace gives you access to a variety of high-yield savings products with competitive interest rates to help boost your savings. Explore account types, compare interest rates, and sign up today to start maximizing your savings potential!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.