NEW Life Events
Planning for retirement may feel like something you can put off for later—but the truth is, the sooner you start, the stronger your financial future will be. Whether retirement is decades away or just around the corner, taking steps today can help you live more comfortably and confidently in the years to come.
Let’s explore more about the basics of retirement planning, identify how much you might need to save, and check out some tips and tricks to make retirement less of a worry—and more of a goal.
Why planning for retirement matters
Retirement might feel far off, but the decisions you make today can have a huge impact down the road. Think of retirement planning as future-proofing your lifestyle. When you plan ahead, you give yourself the flexibility to:
- Maintain your standard of living when you stop working
- Avoid relying on Social Security as your only source of income
- Cover health care costs that may increase as you age
- Travel, enjoy hobbies, or support your family without financial stress
Without a planning for retirement, it’s easy to underestimate how much money you’ll need—and overestimate how long your savings will last.
How much should you save for retirement?
There’s no single magic number, but a common rule of thumb is that you’ll need around 70–80% of your pre-retirement annual income to cover expenses and maintain your current lifestyle. Some financial planners recommend multiplying your expected annual expenses by 25 to determine how much you should aim to save. So, how much do you need? Let’s break it down.
- Before retirement income=$75,000 a year
- 80% of $75,000=$60,000
- 25 x $60,000=$1,500,000
$1.5 million might sound like a lot—but when you break it down, saving a little at a time (and letting compound interest do its thing) can make a huge difference. The key is to start saving consistently and increase your contributions as your income grows. Every little bit counts—and starting early gives your money more time to grow.
Where to save: retirement account options
When you’re planning for retirement, you have several options when it comes to ways to save. Here are some of the most common:
401(k)
A 401(k) is an employer-sponsored retirement account. You contribute a portion of your paycheck pre-tax, and many employers offer a matching contribution.
- There are limits to how much you can contribute
- Contributions reduce your taxable income
- Earnings grow tax-deferred
If your employer matches your contributions, be sure to put in at least enough to get the full employer match—it’s free money for your future.
Traditional IRA
A traditional IRA (individual retirement account) is available to anyone with earned income.
- There are maximum contribution limits
- Contributions may be tax-deductible depending on your income
- Earnings grow tax-deferred
Roth IRA
A Roth IRA is similar to a traditional IRA, but you contribute after-tax dollars.
- Withdrawals in retirement are tax-free (if certain conditions are met)
- Income limits apply for eligibility
- Great option if you expect to be in a higher tax bracket in retirement
Planning for retirement includes budgeting
Budgeting for retirement isn’t just about replacing your paycheck. You’ll want to consider how your spending might change—and plan for both essentials and the fun stuff.
Your retirement budget should include:
- Housing costs (mortgage, rent, taxes, insurance)
- Health care and insurance premiums
- Food and utilities
- Transportation (car payments, maintenance, gas)
- Travel, hobbies, and entertainment
- Emergency and long-term care savings
Best Egg’s Financial Health offers a free Money Manager tool that can help you create a realistic monthly budget to guide you as you’re planning for retirement.
Started planning for retirement late? Here’s how to catch up
If you haven’t started yet, you’re not alone—but there are a few strategies to help increase your savings:
- Max out employer match contributions
It’s worth repeating, if your company offers a match, make sure you’re contributing enough to take full advantage. It’s one of the fastest ways to boost your retirement savings. - Increase contributions gradually
Can’t max out your 401(k) or IRA yet? No problem. Start where you can and bump up your contributions by 1–2% each year—or when you get a raise or bonus. - Use catch-up contributions
If you’re 50 or older, the IRS allows you to contribute more to your retirement accounts. This is a great opportunity to fast-track your savings in your final working years. - Minimize debt
Carrying high-interest debt into retirement can drain your resources. Check out our free Debt Manager to find a debt paydown strategy that could work for you.
Every dollar you save today is one less you’ll need to worry about later.
The best time to start is now
Planning for retirement doesn’t need to be overwhelming. By starting early, making consistent contributions, and adjusting your strategy over time, you’ll be in a better position to enjoy the retirement you’ve worked hard for. And remember: no matter where you are on your financial journey, it’s never too early—or too late—to take the next step.
This article is for educational purposes only and is not intended to provide financial, tax or legal advice. You should consult a professional for specific advice. Best Egg is not responsible for the information contained in third-party sites cited or hyperlinked in this article. Best Egg is not responsible for, and does not provide or endorse third party products, services or other third-party content.