How to save enough money for retirement

Americans in their 60s have a median of $172,000 saved for retirement, according to a study by Transamerica. However, workers of all ages estimate they’ll need $1 million stashed away to feel financially comfortable once they leave the workforce.

Reaching retirement age without being prepared for it financially can be devastating. Regardless of whether you’re in your 50s, 40s, or even younger or how much you have saved so far, the best time to start planning your retirement in earnest is now. To ensure you have a comfortable retirement, make sure you plan accordingly.

4 ways to ensure you have enough money in retirement

Approaching retirement and have a target date in mind? Here are some ways you can increase your retirement savings and start looking forward to your years of financial security.

1. Crunch the numbers
2. Use tax-advantaged retirement savings accounts
3. Open a high-yield savings account
4. Increase your retirement savings rate each year

1. Crunch the numbers

While $1 million can be viewed as a good rule of thumb for how much you should have saved for retirement, your actual number depends on how you want to live during that period of your life. For example, if you have a relatively high income and want to maintain that standard of living after you quit working, you may need to save more.

If retirement is still decades away for you, it’s also important to note that $1 million won’t buy as much then as it does now, and you may need much more to achieve your current savings goals.

There are several retirement calculators online that you can use to determine how much you need to save each month to reach your retirement goals. Because planning includes a lot of assumptions about inflation, taxes, management fees, and more, you may also want to consider consulting a financial advisor who can help you find the right strategy for your situation.

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2. Use tax-advantaged retirement savings accounts

Most American workers have access to a 401(k) retirement plan through their employer, and anyone can open individual retirement accounts (IRAs). These retirement accounts have a special place in the tax code that allows you to enjoy certain tax benefits if you use them to save for retirement.

With a traditional 401(k) or IRA, for instance, you can typically deduct your contributions from your taxable income, lowering your tax bill in the years you make them. When you take the money out in retirement, though, the distributions will be taxable. In contrast, Roth 401(k)s and IRAs don’t allow for a contribution deduction, but your money grows tax-free.

Neither option is inherently better than the other, so you may want to speak with a professional to decide which one is better for you. But either way, it’s better than using a regular taxable brokerage account.

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3. Open a high-yield savings account

High-yield savings won’t do much for retirement. After all, their yields typically aren’t high enough to make up for inflation.

But the interest rate on a high-yield savings account is often much higher than a traditional savings account, which can give you an advantage over the years. Even with rates lower than usual in 2021, you may be able to earn interest at a rate that’s 10 times higher (or even more) than what most accounts offer.

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4. Increase your retirement savings rate each year

As a rule of thumb, experts recommend setting aside at least 15% of your current gross income toward retirement. But again, that figure can be higher or lower depending on how much you’ve saved so far and your expectations for the future.

Also, while 15% is a good target for most people, it can be extremely difficult to get there immediately. So if you have a retirement plan in place, consider making increases to your contributions each year, or possibly even every time you receive a raise. As your contributions increase over time, you’ll have a better chance of getting on the right track toward your goals.

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The bottom line

Planning for retirement can be stressful, and saving enough to reach your retirement goals may feel impossible. But the sooner you start planning, the better your chances will be of getting to where you want to be.

And don’t forget to make sure you have the right accounts in place, whether they be tax-advantaged retirement accounts, high-yield savings, or anything else that can make your money work harder for you in the years and decades ahead.

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