Retirement Planning by the Ages:

Retirement planning is a lifelong process. It starts when you get that first job right out of college and is constantly tweaked over the years.

There is no magic number to target: How much money you’ll want to have saved when you retire depends on a variety of factors, such as the cost of living in your area and the lifestyle you’ll want to maintain. Many financial experts concur that retirees will need about 70 percent of their annual salary to live comfortably. That means if your household income is now $120,000, you’ll want to have access to $96,000 a year.

Not all of that will come from your retirement savings. Social Security, once you hit a minimum age of 62, and—if you’re lucky enough—any pension plan funds you have, will go toward your retirement. Generally, you’ll need to replace about 40 percent of your income through retirement savings.

Here’s a road map to follow, decade by decade, from your 20s right until your retirement date to help you plan for your golden years. 

The retirement goals listed below are targets often suggested by financial advisors. Don’t worry if you’re behind in your retirement savings; everyone’s target amount is different. (We also list plenty of ways to catch up.) The most important thing to remember is, it’s never too early to start saving for retirement, and never too late to catch up!

In Your 20s: Aim to have 1x your annual salary saved by the time you reach 30.

As exciting as it is to have disposable income for what might be the first time, it’s important to prioritize saving over spending, both for everyday life and your eventual retirement. Here’s how to start on that path:

• Pay yourself a portion of each paycheck and build a savings account. An easy way to do that is to have a portion of your check directly deposited into a savings account. Some employers allow for a percentage of your check to go into a second account. You can also set up an automatic transfer from checking to savings one day each month.
• Open a 401(k) retirement account through your employer as soon as you become eligible (employers sometimes require a waiting period before new employees can participate). Employers will often match a specific percentage, so it is wise to—at the very least—contribute enough to maximize the employer’s contribution. For example, if your workplace matches 401(k) contributions up to 3 percent of your annual salary, it makes sense for you to contribute that same amount (this is your play to essentially earn free money). Not all employers offer matching contributions, so it’s something to consider as you weigh job offers.
• Take an aggressive approach when it comes to the funds in your 401(k). They can be invested in a variety of stocks and bonds. Some stock investments offer maximum long-term gains, but they come with a greater risk of losing money should the stock market fall. Those investments aren’t recommended for people close to retirement, but in your 20s, you can take more risk with retirement years away. Watch your quarterly 401(k) statements to see how a certain investment is performing. If it is losing money, or not making as much as you expected, you can redirect your money into different plans. (Consult your financial advisor.)
• Build an emergency fund so that you won’t need to dip into your retirement funds for car repairs or other unexpected expenses.
• Refinance student loans if you don’t already have the lowest interest rates. Take those savings and put them toward your retirement.

In Your 30s: Aim to have 3x your annual salary saved by the time you reach 40.

Things are most likely in flux during this decade. You might want to buy your first home, if you haven’t already. You might have a young family. It could be tempting to get off your saving track to pay for new expenses. Instead, it’s best to stick within your existing budget and remember the following keys toward retirement savings:

• As you move up the career ladder and earn corresponding raises, pay down any remaining student loan debt you might have and increase your 401(k) savings.
• Once you hit your maximum annual contribution of $22,500 (the 2023 limit), consider opening an Individual Retirement Account (IRA), a savings account which allows you to put money away for retirement with either tax-free growth, or on a tax-deferred basis. Be aware however, that your total contributions to all of your traditional and Roth IRA accounts cannot exceed $6,500 (for 2023).
• If you have children, prepare for college expenses with a savings plan so that you won’t be borrowing from your retirement funds. A good place to start is with a 529 plan, which offers tax advantages that encourage saving for future education costs. The rules vary depending on your state of residence, and your tax adviser can lay out all of the benefits for you.
• If you are being recruited by a firm across town or across the country with a higher paycheck, consider what could happen to your company-match 401(k) funds if you leave your job now. Depending on your plan, you might not be fully vested (meaning you haven’t worked there enough years to get all of the matching funds) and could lose thousands of dollars. Would the raise be enough to compensate for that loss? (If it is, also be sure to be aware of the implications of cashing out your retirement fund; a smarter move would be to roll over your 401(k) into an IRA.)
• Just as in your 20s, keep watch on your 401(k) funds and how the plan administrator is investing them. At this stage, most financial advisors still agree that you can invest aggressively. Change up your investment if you see one investment in your 401(k) portfolio is performing more poorly than another.

In Your 40s: Aim to have 6x your annual salary saved by the time you reach 50.

Hopefully, you are moving from your early career into what could be the highest-earning part of your career. If you didn’t follow some of the suggested steps in your 20s and 30s, it’s not too late to catch up and kick your financial preparation for retirement into high gear.

• If you’ve accumulated any credit card or unplanned debt, perhaps medical expenses not covered by insurance, now is the time to increase your efforts to pay it off and steer the payments you’ve been making toward retirement.
• Keep contributing to the IRA that you set up in your 20s and 30s. The benefits of the company match and tax advantages will stay with you throughout your career. (Be aware that there are income limits for contributing to a Roth IRA for single taxpayers and married couples filing a joint tax return; there are no income limits for a traditional IRA. Be sure to consult your tax advisor.)
• Regularly monitor your investments and shift them around if need be. Until now, the money in your 401(k) probably has been invested in higher-risk, higher-reward assets. Now is the time to move your portfolio into a mix of higher- and lower-risk stocks, as you have less time to recoup any losses.
• Don’t choose your kids’ education over your retirement. If your kids still have some time before college, open a 529 college savings plan now. Don’t borrow from your retirement savings because you’ll pay penalties to do so, and potentially put your retirement in jeopardy. The interest you’ll pay on a student loan could be less than the penalties you’d pay taking it out of your 401(k).

In Your 50s: Aim to have 8x your annual salary saved by the time you reach 60.

Retirement is in view! The kids are most likely out of the house, and you are closer to envisioning time for yourself and the retirement passions or hobbies you’ll pursue. Will you be staying in your home or downsizing? Do you intend to travel? Now it’s time to analyze just what you’ll be doing and how much money you might need.

• If you find your account is underfunded, you can play catch up. Earlier, we mentioned that maximum contributions for 401(k) and traditional and Roth IRA accounts can’t exceed set amounts. When you’ve hit age 50, the contribution amount rises to $30,000 for a 401(k) account and $7,000 for the traditional and Roth IRAs.
• If you need to catch up on your retirement savings, recognize that it might be time to stop—or at the very least decrease or question—helping your children financially. In a 2019 survey of about 2,500 parents, 50 percent of respondents said they had helped out their adult children, deferring money from their retirement savings. Of the respondents, 17 percent called the funds they gave to their kids “a lot.” Be sure you weigh the needs of your children and understand the impact any assistance you offer them could have on your retirement.
• If you’ve changed jobs through the years and have retirement accounts you haven’t rolled over, consider merging them into one. By studying your quarterly statements, you can see which account has given you the best rate of return and, as always, make any adjustments to your investments.
• If you’ve been the one tending to the finances through the years, now is the time to bring your spouse into the loop. It’s good practice at any age for both halves of a couple to have a full financial picture, but it’s especially important at this age. You will have decisions to make, such as when to retire or whether to downsize, and both sides need to know the facts as they ponder the future.

In Your 60s: Aim to have 10 times your annual salary for retirement.

It’s just about time to stop planning for retirement and actually make the leap, but you still have decisions to make and things to do.

• At what age will you actually retire? For a person born in 1960 or later, the full retirement age is 67. That’s when you’ll receive your maximum Social Security benefits. If you choose to begin receiving your monthly payout at age 62, you’ll receive 70 percent of the full payment each month. If you wait until age 65, the number rises to 86.7 percent.
• Meet with your human resources representative at work to discuss your pension. When can you start collecting your full pension? If you’ve been on the job a certain number of years and have accrued your full pension benefits, you may be able to retire sooner than you think.
• Before you retire and while you’re still receiving a paycheck, make extra payments on your mortgage, if you have one, to whittle it down as far as you can. Make other adjustments to your budget, as needed, to enable you to finally take that leap into retirement.

When you are just starting out in life, retirement seems like it’s a lifetime away. Remember that life moves fast, and it’s never too early to start.