Couple walking on the beach
Hero Images/Getty Images

How much money will you need to retire? If you’re like the majority of Americans, you don’t know the answer.

A Bankrate survey from June 2018 found that 61 percent of Americans don’t know how much they will need to have saved to fund their retirement. Meanwhile, a separate March 2019 survey found that 21 percent of working Americans aren’t saving at all. It’s no surprise then that half of working households are “at risk” of not being able to maintain their standard of living when they retire, according to the National Retirement Risk Index (NRRI) from Boston College’s Center for Retirement Research.

Clearly, something is going wrong with retirement planning.

There are ways to make sure you stay on track, though. Below you’ll find tips for what you can do to improve your ability to save and what goals you should be aiming for beginning today, no matter your age or financial situation.

Everyone is different, so retirement needs will vary. But in the end, we all need a cushion to finance the last bit of our lives. Rest assured, very few wind up working all the way until the end.

How much money will you need to retire?

When a client asks Dan Tobias, a certified financial planner at Passport Wealth Management in Charlotte, North Carolina, how much they’ll need to retire, he’s quick to redirect the question by asking the client what retirement looks like for them.

“Are they looking to drive a Lamborghini, or are they looking to move to a 55-plus type condo in Florida?” Tobias asks.

After Tobias understands the person’s retirement vision, he can apply certain rules of thumb. One is seeing what 4 or 5 percent of your retirement savings is, and what your lifestyle would be like living off that amount. If that number isn’t on target, you’ll have to either increase your retirement contributions or live more frugally during retirement.

Fidelity recommends certain levels of retirement savings as you age. For instance, at age 30 you should have at least your annual salary saved. When you turn 40, you should have three times your salary. And at age 50, you should have six times what you earn annually saved for retirement. By the time you turn 60, the goal is to have eight times your salary saved – and it should reach 10 times your salary by age 67.

Merrill lists saving 12 times your salary before retiring as one of its rules of thumb.

Bankrate’s Retirement Calculator can help you get a better idea of how much money you’ll need and whether you may need to work a few more years than expected.

How to maximize savings on a budget

Sticking to a strict budget doesn’t mean that you shouldn’t also be contributing to your retirement. Even with limited resources, there are ways to maximize your savings so you don’t find yourself underwater later on.

One trick that can make saving easier month-to-month is automatic contributions. If you don’t ever see the money going into your savings, you won’t have the opportunity to miss it. Whether your employer offers direct deposit to multiple accounts or you set your own account to automatically transfer funds into dedicated savings, this can be an easy and painless way to integrate savings into your budget.

Another way to direct more funds into your retirement savings while working with a budget is to cut down on your expenses. Look for places in your budget that you can minimize or shop around for better rates, like groceries, utilities and discretionary spending. Then, deposit those extra dollars into your savings account until you begin to hit your savings goals.

If you don’t see any cost-cutting options, you could instead look into a side hustle. Whether you decide on freelance work, a part-time job or passive income option, a few extra hours each week can result in a healthy deposit directly into your savings.

It’s important to integrate savings methods into your budget now so you and your family can benefit long-term.

Retirement accounts: Roth IRA vs. traditional IRA

Choosing the type of account for stashing away your retirement savings is important. There are numerous options out there, but they often differ in contribution limits, tax benefits and early withdrawal rules.

Pay specific attention to these differences; appropriate retirement accounts will vary by the individual.

Individual retirement arrangements, or IRAs, are investment accounts that offer tax benefits to help you get the most out of your retirement savings.

Here are the differences between the two main types of IRAs:

Traditional IRA

  • Income requirements: None.
  • Contribution limits: $6,000 per year, or $7,000 for those aged 50 and older.
  • When can funds be withdrawn? Funds can be withdrawn at age 59 1/2.
  • Tax benefits: Tax deduction is available for the tax year in which contributions were made or for the previous year if completed by Tax Day.
  • Early withdrawal rules: Taking money out of a traditional IRA before age 59 1/2 will typically result in taxation and may be subject to a 10 percent penalty.

Roth IRA

  • Income requirements: Modified adjusted gross income must be less than $122,000 — if it’s more than that but less than $137,000, a partial contribution is allowed.
  • Contribution limits: $6,000 per year, or $7,000 for those aged 50 and older.
  • When can funds be withdrawn? Contributions can be withdrawn at any time.
  • Tax benefits: Invest money after taxes and then take contributions and earnings out tax-free in retirement.
  • Early withdrawal rules: Contributions can be withdrawn tax-free, but earnings may be taxed and subject to a 10 percent penalty.

[Read: What is an IRA? Here’s everything you need to know]  

How to save in your 20s

Try to set this goal: By the end of your 20s, aim to have as much in your retirement accounts as you earn in a year.

Build your emergency fund

Start small. Financial advisers recommend you have six months’ worth of essential expenses stowed away in a high-yielding savings account. That’s a rather daunting task for someone just starting out in their career.

Don’t worry, you don’t have to get there all at once. Aim for one month’s worth (about $3,500 for the average 30-year-old) and then go from there. A fully funded emergency fund will stop you from dipping into your retirement accounts if you’re ever in need of cash, which would cripple your ability to count on compounding interest.

Start saving for retirement

Take advantage of your employer’s 401(k) plan

Save at least 10 percent of your pay, including any employer match, in a tax-advantaged retirement account, such as a 401(k). More than three-quarters of full-time jobs offer a retirement benefit, according to a 2017 analysis by the Federal Reserve, and new workers may be auto-enrolled in one. Which is great, except you may be set up to save a smaller portion of your salary — say, 3 percent — than what’s recommended. Make sure to increase your contribution or at least set up an auto-escalation so that you put in more each year.

How to save without a 401(k)

If your employer doesn’t offer a 401(k) or you’re a part-time worker, consider a Roth IRA. You can save $6,000 in after-tax income, but the money grows tax-free and won’t be taxed when you withdraw the funds in retirement.

Alternatively, you can contribute pretax income to a traditional IRA — up to the same amount as a Roth IRA each year — but the funds aren’t taxed until you withdraw.

In order to replicate the simplicity of a 401(k), you can set up your direct deposit to automatically contribute to whichever retirement fund you choose. By directing just $500 of your monthly income to an IRA, you can max out your contributions for the year.

The irony of retirement savings is that you need to start young. To fully enjoy the power of compound interest you need to maximize the years you give yourself to save.

Let’s assume you start saving $5,000 annually at 22 and continue to save that amount until you turn 67. (In real life, of course, there’s inflation, raises and other expenses, but let’s put that aside for now.) Assuming an annual return of 6 percent, you’ll end up with $1.13 million by the time you reach full retirement age. Compare that with someone who starts saving a decade later and has only 35 years until retirement. That person will have to save nearly twice as much money each year to end up with the same amount by 67.

Use Bankrate’s 401(k) calculator to see if you’re on track to reach your retirement savings goals.

Think stocks

Play it aggressively by putting a high percentage of your portfolio in stocks. When you’re in your 20s, you have a long investment horizon. That means you can handle the ups and downs of the market.

Check out this asset allocation calculator to create a balanced portfolio of investments that fits your time horizon and risk tolerance. Instead of picking individual stocks, look to mutual funds, exchange-traded funds or a target-date fund to diversify your investment portfolio.

How to save in your 30s

Try to set this goal: By age 35, have two times your salary saved in your retirement accounts, on the way to three times that figure by age 40.

Ramp up your emergency fund

Your 30s are when you really start to grow up financially. The largest portion of homebuyers, for instance, are those age 37 and younger, according to the National Association of Realtors, with a median age of 31.

Maturation, though, means you have more to lose. A late mortgage payment is a wholly different situation than missing rent. You don’t want to lose your house, which may increasingly become filled with children. Now is the time to increase that one- to three-month emergency fund to something closer to six months.

Ramp up your retirement savings

A Bankrate analysis of 2017 data from the U.S. Census Bureau found median earnings jump from $62,294 for 25-to 34-year-olds to $78,368 for 35-to 44-year-olds.

This is the time in your life when you start earning real money, which makes it even more important to save for retirement. If you’ve fallen behind on your 10 percent goal, make it up now.

If you’re already saving that much, great; work on increasing it to 15 percent.

Now is also the time to take advantage of automatic increases in your retirement savings. You can set up a direct deposit into your retirement fund to increase by a set percentage each year. Since the increased percentage goes into your account automatically, you won’t have the chance to miss it.

Get on the same page as your spouse

Many Americans are getting married around this time of their lives. This means tying yourself to someone, both romantically and financially. The two have a way of affecting each other.

According to Bankrate’s sister site, 19 percent of Americans in relationships have hidden a financial account, such as a credit card or a savings account, from their spouse. Nearly a fifth of respondents said such financial infidelity is worse than physical cheating. Successfully reaching your retirement goals will depend on clear communication with your spouse on all things financial: from the budget to how much to save, and planning for what you want to do in retirement.

How to save in your 40s

Try to set this goal: Aim for four times your earnings saved by age 45, and six times by age 50.

Pay off debt

A number of families may be carrying a credit card balance in their 40s. Eradicating that burden can go a long way to freeing up more money to put toward retirement.

Sign up for a no-fee balance transfer credit card with a lengthy zero percent interest period so that you give yourself time to pay off the debt. Someone with a $7,000 balance could erase their debt with 15 payments of $467 before interest kicked in.

Once the debt has been paid off and you’re sufficiently used to living without that money, raise your retirement contributions by a similar amount.

Don’t get too conservative

At 40, you’re still a long way from retirement, so don’t rush to play it too safe, says Ellen Rinaldi, former executive director of investment planning and research at mutual fund company Vanguard.

As a rule of thumb, Rinaldi recommends scaling back stocks to 80 percent of your portfolio and putting the balance in conservative holdings like bonds. Maintain a broad view of all of your holdings as you reallocate assets. It’s not just enough to focus on the 401(k). Take all of your investments into account. Make sure you haven’t forgotten anything, either, like a 401(k) or other benefits you may have earned at previous jobs. If it’s an old 401(k), roll that into an IRA, which you can invest any way you want.

“It happens all the time — people leave money in a 401(k) and forget about it,” says J. Michael Scarborough, president and CEO of Retirement Management Systems. “They take more time on their vacation than they do on retirement planning.”

Put college savings in perspective

Hopefully you’ve been saving for their higher education since your kids were in diapers. If so, you’ll be able to keep chipping away without diverting huge sums of cash from your retirement savings. If you’ve neglected to save for college and your 401(k) is less than robust, you may not have enough money to fund both.

Many parents often sacrifice their own retirement planning to care for kids — even those who have already graduated from college. A recent Bankrate survey found that half of Americans have jeopardized their retirement savings to pay for their adult children’s bills — and that can be a big mistake.

“When forced to make a choice, people support their own children first. They’ll put themselves last,” says Merl Baker, principal at the financial consulting firm Brightwork Partners. “They’re reconciled to working longer than they planned or expected to. Or they accept a lower quality of life. It’s pretty powerful.”

If you’re determined to help your child and money will be tight, look for compromises that may have less of a negative impact on retirement savings, such as sending your child to a local, in-state school instead of an expensive private college.

How to save in your 50s

Try to set this goal: Aim for seven times your earnings by age 55, and eight by age 60.

Take advantage of catch-up contributions

Turning 50 has some advantages, including contributing more to your retirement account tax-free. In 2019, individuals age 50 or older can save up to $25,000 in a 401(k) and up to $7,000 in an IRA. Take advantage of these opportunities as soon as you’re able.

“It’s not hopeless,” says Dee Lee, certified financial planner professional and author of “Women & Money.”

To illustrate, Lee describes a couple who determines that they need to do some belt-tightening. If each contributes $10,000 a year to a 401(k) plan, they’ll have about $90,000 each after seven years, assuming the money grows by 7 percent a year.

But that’s a big assumption. Your portfolio will have to be allocated heavily in the direction of stocks, and they will have to rise when you need them to. Historically, stocks have earned just over 10 percent a year, while bonds have clipped along at roughly 5 percent. If you’re unwilling to invest in stocks, you may very well wind up short of your goals.

Those in their 50s, nevertheless, are generally too young to flee to the safety of cash instruments.

“This is not the time when you go to cash,” Rinaldi says. “You may stay 50-50 in stocks and bonds. But you’re going to need growth in your portfolio.”

Figure out your retirement budget

How much is enough? That depends on your lifestyle and expenses, potential medical bills and the kind of support you’ll have from, say, a pension plan and Social Security. But, as you review your savings goals, be careful not to set the bar too low.

“People typically don’t downsize,” says Harold Evensky, certified financial planner professional and chairman of Evensky & Katz in Coral Gables, Florida. “It’s not uncommon for them to spend more in retirement than less.”

Fill out a comprehensive retirement expenses worksheet to get a sense of where your money is going when a paycheck is no longer coming in.

To get a more personalized account, contact a fee-only certified financial planner, and make sure they put your needs before their own.

Plan for medical costs

Safeguard your finances against unexpected medical costs. Some hefty medical bills can quickly eat up a lifetime of savings. A couple in their mid-60s will need $285,000 to cover health care costs in retirement, according to a 2019 Fidelity estimate.

Then there’s the stratospheric cost of extended care at nursing homes. A report from Genworth says the median annual cost of a semi-private room in a nursing home was $89,297 in 2018.

With that in mind, retirement planning must include some consideration of future medical costs. One option is long-term health insurance, which pays for extended medical care including such things as nursing and assisted living — which can be expensive.

“It has to be easily affordable not just for today but for the whole premium period,” says Marilee Driscoll, founder of Long-Term Care Planning Month, a public-awareness effort that takes place during the month of October.

How to save when you hit retirement age

Once you’ve reached retirement age and it’s time to dip into your savings, there are still ways to save and make the most of your lifetime earnings.

Use Social Security to your advantage

Social Security benefits can be a major factor in your retirement fund. Based on your birth year, your eligibility for full benefits may vary, but you should look into the best option for you.

For those born in 1960 or later, full retirement age, when you can receive full retirement benefits, begins at 67. Anyone born between 1938 and 1959 reaches full retirement on a varying scale between ages 65 and 67. You can claim Social Security benefits beginning at age 62, but in order to receive full benefits, you must wait until your full retirement age.

Social Security is a valuable addition to your retirement earnings. If you’re unsure when the best time is to claim your Social Security benefits, working with a fee-only certified financial planner can help.

Additional savings for retirees

When you begin using the money you’ve saved for retirement, determine the best time to access the funds in each. Your tax-deferred accounts will be most efficient when your income tax rate is lower, while a tax-free account like a Roth IRA will be more beneficial during periods when your income rises. Implementing strategies to reduce taxes can help you manage your income more successfully throughout the retirement years.

Learn more:

Bankrate’s Kelly Anne Smith contributed to the update of this story.