Saving for Retirement in Your 20s, 30s and 40s

In Your 20s
When it comes to retirement savings, starting early is the way to go. Even if you’re saving 1-2% of your income, that money has 40-plus years to reap the benefits of interest and market gains. If your employer offers a 401(k) matching program, we recommend setting aside enough to max out the match. For example, if your employer will match your 401(k) contributions up to 5%, you should be saving at least 5% too. Save less, and you’re skipping out on free money.

Many experts recommend putting 15% of your monthly income toward retirement. If this seems out of reach for you right now, save as much as you can afford and try increasing your contribution by 1 to 2 percentage points each time you get a raise or once a year. You might consider making the change near your birthday as a present to your future self.

In Your 30s
There are likely to be many financial goals competing for your attention as marriage, home-buying and kids come into the picture. It’s important not to lose sight of your retirement savings plan. As your finances become more complicated, it could be a good idea to seek the help of a Certified Financial Planner (CFP). He or she can help you prioritize all of those goals and avoid common money mistakes that could take your savings plan off track, like buying more house than you can afford and, ironically, putting
too much money into your 401(k).

Something else to consider — consolidate your 401(k) funds from your previous employers into a Roth IRA. Although we don’t recommend taking money from your future self just because, Roth IRAs allow you make withdrawals in case of emergency without paying a tax penalty.

In Your 40s
Many of the same rules apply in your forties that applied in twenties and thirties, like saving at least enough to earn your employer match and not sacrificing saving to fund an extravagant lifestyle. As you draw closer to retirement, it pays to be conservative with your investments and put other safeguards, such as adequate insurance coverage, in place so that your retirement plans aren’t derailed in case of the unexpected.

Many forty-somethings also struggle with the decision to save for their retirement or save for their children’s college education. If you can afford to stay on track with both, that’s great, but if you can’t, remember that you can borrow money to pay for college, but you can’t really borrow money to pay for your retirement.