What are retirement savings?
Retirement savings refer to the money you set aside during your working years to support yourself financially after you stop working. Retirement savings accounts—including IRAs, 401(k)s, and other employer-sponsored plans—offer tax advantages and special features that can help you build your savings over time. Each account has different contribution limits, rules, and benefits. Saving early for retirement lets you take advantage of compounding, which occurs when earnings on your savings generate their own earnings. Compounding can help your money grow significantly, so it pays to start saving as soon as you can.
Keep in mind that unlike standard savings accounts, some retirement savings can't be accessed without penalties until the age of 59 ½. Also, while you may plan for Social Security benefits to help fund your retirement, they’re intended to be supplemental income rather than your primary source. Experts recommend planning for most of your retirement income to come from your own savings.
Factors that influence how much to save for retirement
- Timeline: Knowing your expected retirement age can help you estimate how many years of retirement to prepare for. Retiring early will require greater savings than waiting until age 65.
- Lifespan: The estimated retirement lifespan is 30 years. The longer you'll be living in retirement, the more money you'll need to save.
- Where you'll live: Your retirement locale, housing, and people in your household will significantly impact your future cost of living.
- Future hobbies: Think about the anticipated costs of how you want to spend your time.
- Health care costs: Medical expenses can be significant, especially if they include in-home care, assisted living, or other specialized services.
- Inflation: Increasing costs over time can reduce the purchasing power of your savings and affect the lifestyle goals you have.
How to save for retirement in 5 steps
Your unique circumstances, goals, and desired retirement lifestyle will determine how much you need to save. Some experts suggest having at least 8–10 times your annual salary available to you when you enter retirement. Others say you’ll need at least 65%–80% of your pre-retirement income available to you for each year you spend in retirement.1
Start with the 5 following steps as a foundation for your retirement savings strategy and personalize them to your needs. If you have more complex finances, speaking to a Vanguard advisor about your retirement plan may be helpful to you.
To get a baseline, first calculate your current spending using our Retirement Expenses Worksheet. Next, estimate how various spending categories may increase or decrease and calculate the new total. Be sure to consider how your housing, transportation, health care, and insurance costs will change after you leave the workforce. Keep in mind any goals to travel, pursue hobbies, or engage in charitable giving, as each of these is likely to increase your expenditures.
The most popular types of retirement accounts include 401(k)s, Roth IRAs, and traditional IRAs. You can choose to have a mix of these accounts to suit your tax strategy, retirement goals, and contribution goals. Consult a financial advisor to determine which is best for you.
- 401(k): A tax-advantaged, employer-sponsored retirement savings plan that allows employees to automatically save a portion of their paycheck. Any investment growth is tax-deferred in the account, and taxes are applied to withdrawals in retirement. Key benefits of 401(k)s are high contribution limits and the potential to receive matching contributions from your employer to add to your savings.
- Roth 401(k): An employer-sponsored retirement savings plan with post-tax contributions, allowing for tax-free and penalty-free withdrawals in retirement. Less common than traditional 401(k)s but growing in popularity, this account type can be suitable for early-career professionals in lower tax brackets who expect higher income in retirement, or anyone looking to minimize future tax liabilities.
- Traditional IRA: A type of individual retirement account that allows you to contribute pre-tax dollars, which can reduce your current taxable income. Any investor, regardless of income, can open a traditional IRA. Any growth is tax-deferred, and withdrawals in retirement are taxed as ordinary income.
- Roth IRA: A type of individual retirement account that allows you to contribute after-tax dollars. Investors within certain income limits are eligible to open a Roth IRA. Any growth is tax-free, and withdrawals are exempt from taxes as long as you've held the account for 5 years and reached age 59¹⁄₂.
Funding your retirement savings account is only half the journey. The next step is to give your savings the potential to grow by investing them in an appropriate mix of securities like stocks, bonds, and mutual funds. 401(k)s usually offer a selection of mutual funds to choose from. With IRAs, you can select from a wide range of investments including mutual funds and ETFs in addition to individual stocks and bonds.
Before selecting investments, determine the asset allocation that matches your goals, time horizon, and risk tolerance. This is the ratio of stocks, bonds, and cash that makes up your investment portfolio. You want to find a balance that gives you enough growth potential to achieve your goals while maintaining a comfortable level of risk. Once you have a target asset mix in mind, you can create a diversified portfolio. Diversification refers to spreading your assets across different investments, which helps to reduce risk. If you're new to investing, target-date funds are a great option for less experienced investors.
Retirement accounts are subject to annual contribution limits set by the IRS, which vary based on factors including account type, age, and marital status. If you’re age 50 or older, take advantage of catch-up contributions, which allow for higher contribution limits. These additional contributions can help you make up for lost time and bridge any gaps in your savings.
Take advantage of employer matching
Many employers offer to match a portion of your contributions to your employer-sponsored retirement plan. Always prioritize employer matching contributions when they're available. This is essentially free money and can significantly boost your retirement savings. For example, if your employer matches your contributions up to 4% of your salary and you contribute 6% of your pre-tax or after-tax income, you're saving a total of 10% toward your retirement.
Automate contributions
Consider setting up automatic contributions to your retirement accounts. This ensures you consistently save a portion of your income without having to think about it each month. You can increase your contributions over time to maximize your savings.
Due to market performance, your initial asset allocation may shift over time. Rebalancing your portfolio is the process of realigning the percentage of your investments to maintain your original mix. For instance, if you initially allocated 60% of your portfolio to stocks and 40% to bonds, strong stock market performance may increase the stock portion to 70%, while the bond portion drops to 30%. To rebalance, you'd sell some stocks and buy some bonds to bring the portfolio back to its intended 60/40 ratio.
Rebalancing can be done annually or semiannually and helps you maintain your risk strategy for your retirement goals. It’s key to keep a long-term mindset with your portfolio and avoid reacting to any market volatility. A Vanguard advisor can help you strategize your risk and manage your portfolio’s asset mix with consideration to your goals.
Explore retirement savings learning paths
Explore our 3 retirement savings learning paths to develop your retirement strategy, navigate questions you may have about your planning, and maximize your savings if you’re close to retirement. Choose the track that aligns best with where you are in your retirement journey.
Retirement savings fundamentals
Saving for retirement
How much do I need to retire?
Retirement accounts—which plan is best for you?
What is an IRA? Here's the gist
Roth, traditional, or both?
Retirement funds: Investment options for retirement
Retirement strategy optimization
Can an IRA tax deduction be a perk for you?
Roth IRA conversion
Backdoor Roth IRA: What it is and how to set it up
IRA recharacterization
Excess Contribution: Did you over-contribute to your IRA?
Rebalancing your portfolio
Diversifying Your Portfolio
Investment portfolios: Asset allocation models
How risk, reward & time are related
Catch up on retirement savings
IRA catch-up contributions: What you should know
No 401(k) at work? Here's how you can save for retirement.
When can I retire?
Top Social Security questions
Start building your strategy with tools and calculators
You’re ready to save for retirement
Way to go! If you’ve made it this far, you’ve learned a lot about saving for retirement. Building your retirement savings takes time, discipline, and dedication. Starting today can help reduce future financial stress, give you the flexibility to choose how you spend your money and time in retirement, and give you confidence about your financial well-being.
What you’ve learned:
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Why your target savings goal should account for your future lifestyle, not just your current expenses.
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Considerations for health care in your retirement plan.
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The tax implications of a 401(k), Roth IRA, and traditional IRA
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Why you should prioritize employer matches in 401(k)s.
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Why target-date funds can be great for novice investors.
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When you should consider rebalancing your investment portfolio.
Why choose a Vanguard retirement account?
For more than 5 decades, we’ve focused on helping investors succeed. And because every goal deserves a path to success, we offer accounts, plans, and investment products to help all investors build lives they love. We're here to support your unique needs with options tailored to your work, family, and legacy.
Support for every investor
We offer SEP IRAs, which are specialized retirement accounts for self-employed individuals who own and run their own businesses. These accounts allow you to save more for retirement and take advantage of tax benefits.
We provide spousal IRA options, allowing a working spouse to contribute to an IRA on behalf of a non-working spouse. This helps both partners save for retirement and maximize their tax benefits.
We offer minor IRAs, which allow parents or guardians to open and manage an IRA for children who earn their own income. This can be a great way to start building a child’s retirement savings early.
If you are a beneficiary of an IRA, we can help you understand your options and manage the account effectively, including making informed decisions about required minimum distributions (RMDs).
We provide holistic financial planning, investment advisory services, estate planning, and more for individuals navigating the complexities of having $5 million or more in invested assets.
Professional retirement advice
Saving for retirement can feel simple. We offer both automated and dedicated advisory services to guide you toward your goals and to help you manage more complex financial questions as you get closer to retirement.
Invest in your retirement today
1CBS News. How much money do you need to retire? Here's what experts recommend. February 2024.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.
Investments in bond funds are subject to interest rate, credit, and inflation risk.
There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Withdrawals from a Roth IRA and Roth 401(k) are generally tax-free if you are over age 59½ and have held the account for at least five years; withdrawals of earnings taken prior to age 59½ or five years may be subject to ordinary income tax or a 10% federal penalty tax, or both. (A separate five-year period applies for each conversion and begins on the first day of the year in which the conversion contribution is made.)
Target-date investments are subject to the risks of their underlying funds. The year in the investment's name refers to the approximate year (the target date) when an investor would retire and leave the workforce. The investment will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. A target-date investment is not guaranteed at any time, including on or after the target date.
Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.
The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.
VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.