Everyone’s situation is different, so there’s no single “best” way to save for retirement. But the earlier you start saving, the better — and there are a few general best practices that can keep you on track. By understanding different account options and wealth-building strategies, you can set your future self up for success.

Read on as we unpack how to save for retirement and secure your financial future.

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6 retirement savings tips

As you start planning your retirement, here are six savings tips to keep in mind.

1. Start early 

People often wonder when they should start saving for retirement. The sooner, the better — but it’s never too late. For example, a 45-year-old with no savings could contribute 15% of their $85,000 salary for 22 years. At an annual return of 10%, these funds could grow to around $1,012,000 before retirement.

The problem is that they wouldn’t be able to take full advantage of compounding interest. As their savings generate returns, their total balance increases. And with compounding, those returns also earn interest, accelerating growth over time. So the longer the money stays in the account, the more it can grow.

Hypothetically, say you earn $60,000 a year. If you contribute 15% of your income from age 25 to 65 into the U.S. markets, you may retire with approximately $4 million. But if you start at age 35, you may retire with about $1.5 million instead.

2. Save 15%

To live comfortably in retirement, you may likely need 55–80% of your current income. Social Security typically covers a portion, but changing regulations may make it less reliable in the future. 

So, it’s best practice to follow the 15% rule. If you start at age 25 and save 15% until age 67, you should be well-positioned to meet this goal. But as you get closer to retirement age, you may want to consider putting aside more than 15% of your income, if possible. 

As you consider your retirement goals, it can be helpful to determine how much in savings you’ll want to have for retirement by certain milestones, such as age. For example:

• 30 years old: 0.5x of salary saved
• 40 years old: 1.5–2.5x of salary saved
• 50 years old: 3.5–6x of salary saved
• 60 years old: 6–11x of salary saved
• 65 years old: 7.5–13.5x of salary saved

If you don’t hit those milestones, just adjusting your savings goals by 1% can make a notable difference. For example, if you set aside 15% of $60,000 from 25 to 65, you can retire with about $4 million (assuming a 10% annual growth rate). But if you set aside 16% instead, you can potentially retire with about $4.25 million.

3. Understand the risk pyramid

The risk pyramid is a framework that explains an investment’s volatility. At the top of the pyramid, investments have the highest potential returns and losses. As you move down the pyramid, investments become increasingly safer but with decreasingly lower earning potential. 

Here are a few examples:

• Top of the pyramid (high risk, high returns): Options, futures, and collectibles. 
• Middle of the pyramid (medium risk, medium returns): Real estate, high-interest bonds, and equity mutual funds. 
• Bottom of the pyramid (low risk, low returns): CDs, government bonds, and annuities. 

The younger you are — and the longer your retirement horizon — the more risk you can afford to take to earn potential rewards. But as you approach and enter retirement – and your retirement horizon shortens – shifting toward more conservative financial products may be a smarter strategy. 

4. Ensure you’re in a healthy financial state before investing

It’s important to start growing your savings as early as possible but to do that you may first need to ensure that your personal finances are in solid shape.

Here’s what you can do:

• Define your goals: Understanding your lifestyle preferences allows you to set clear, measurable savings goals. That way, you may maintain your current living standard even after you stop working.
• Build an emergency fund: Consider building an emergency fund — ideally covering 3–6 months of expenses. It’s usually best to hold this money in a liquid, easily accessible place, like a traditional or high-yield savings account. 
• Get out of debt: As soon as possible, aim to pay down or eliminate high-interest debt so you can redirect more of your income toward your retirement.
  

5. Examine each investment 

Before you invest in an asset, it’s very useful to understand the asset’s history. The safest accounts have demonstrated long-term resilience through economic cycles.

For example, the U.S. stock market can be volatile in the short term. The S&P 500^® declined by 19.44% in 2022 but rose by 24.23% in 2023, which might make investors nervous. But for those focused on the big picture, such short-term fluctuations matter less, as the S&P 500^® has an average annual return of about 10.13%.

Everyone has a different tolerance for risk, though, so you might opt for investments that offer a steady income stream rather than those tied to market fluctuations.

6. Don’t rely on Social Security alone

Relying exclusively on Social Security may not be the best strategy. Without congressional action before 2033, the OASI Trust Fund is projected to run out. This could force the Social Security Administration to rely on incoming revenue, which only covers about 79% of scheduled retirement benefits.

That’s to say that Social Security is more likely to supplement your retirement savings, rather than serve as your primary source of income. In that case, most of your funds would come from the assets like those we’ll cover below.

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How to start saving for retirement: 4 options 

There are multiple ways to save for retirement, each with its own entry barriers, risk profile, potential returns, and tax implications. Let’s look into four tried-and-true options.

1. Annuities for retirement

An annuity is a contract with an insurance company that, in exchange for a lump sum or series of payments, promises to provide a steady income stream.

There are many types of annuities, including fixed, variable, and deferred. For example, a multi-year guaranteed annuity may help people achieve their retirement goals by:

• Providing a guaranteed interest rate over a set period of time to help their principal grow predictably and securely.
• Offering tax-deferred growth so that they only pay taxes on interest once they withdraw.
• Protecting their original premium from market fluctuations. 
• Allowing flexible withdrawal options, including penalty-free withdrawals up to a certain limit each year.

2. 401(k)s for retirement

401(k)s are retirement accounts typically run by your employer that you can contribute to with each paycheck.

There are several practical upsides to 401(k)s:

• Most employers offer a matching contribution, usually 3–6% — think of this as free money. 
• Contributions can lower your taxable income with a traditional 401(k), and earnings grow tax-deferred until withdrawal.
• 401(k)s typically have higher annual contribution limits than individual retirement accounts (IRAs). 

While 401(k)s are an excellent way to save, your contribution choices may be more limited than with IRAs or other brokerage accounts. Plus, early withdrawals before age 59½ usually result in penalties.

3. Roth IRAs for retirement

Unlike a 401(k), a Roth IRA is funded with after-tax contributions — so you don’t receive an immediate tax deduction but your contributions grow tax free. And as long as you meet certain requirements, your qualified withdrawals may also be tax free.

Some opt for Roth IRAs over 401(k)s because they typically offer access to a wider range of investment options. The drawback is that IRAs have lower contribution limits than 401(k)s. So even if you contribute the maximum amount into both your 401(k) and Roth IRA, you may still fall short of the commonly recommended 15% savings goal.

If that’s the case, you may look into other savings vehicles to make up the difference.

4. Health Savings Accounts (HSAs) for retirement

As you age, you may need to spend more of your savings on healthcare expenses. Instead of relying solely on retirement accounts, you may also consider opening an HSA.

These medical savings accounts offer a triple tax break: Contributions are made pre-tax, the money grows tax free, and withdrawals for qualified medical expenses remain tax free. 

Note that if you enroll in Medicare, you’re no longer eligible to open or contribute to an HSA — but you can still use existing funds.

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This communication is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice.