How to Save for Retirement

We can all agree that saving for retirement is important. But it’s hard to know where to get started.

If you are just starting to save for retirement, or maybe you’ve avoided it because it’s all so confusing, you’re in the right place. Saving for retirement doesn’t have to be complicated, and you can actually get started right now.

In this article, we'll break down the process of saving for retirement, how much you need to save each month, where to put it all, and how to choose your investments so that you can have enough to retire in the future.

And don’t worry, we’ll make it easy, showing you the different types of accounts to choose from and how they work. Plus we’ll cover how to automate the whole thing so you barely have to think about it (what a relief, right?). So keep reading to learn how to save for retirement the simple way.

Erika Taught Me

  • First, you need to figure how how much you need to have saved at retirement
  • Then work backward to figure out how much you need to save per month
  • You'll want to use a tax-advantaged retirement account to make the most of your savings

Determine your retirement goal

The best place to start with any goal is at the end. If retirement is your destination, we need to figure out exactly what it will look like before creating a financial roadmap to get there.

To reverse engineer your retirement, you’ll want to create a clear picture of what it could look like. Ask yourself these questions:

  • Where will I live?
  • Will I own my home (no mortgage)?
  • How much do I want to travel?
  • What will my monthly expenses look like?
  • Are there any large one-time expenses anticipated (buying an RV, home, etc.)?

While retirement may be a long way off, it’s important to think critically about what your spending could look like. Coming up with an estimate gives you a goal to shoot for.

Determining Your Retirement Savings Goal

Once you have a rough idea of how much money you need on a monthly and annual basis, you can now reverse engineer how much money you need to save for retirement. Using this free investment calculator tool is a good place to start.

General consensus among financial professionals is that you can safely withdraw 4% of your retirement savings per year. This means you need enough money saved and invested to live on 4% of your total portfolio in the first year of retirement.

The math is pretty simple, actually. Here’s how it breaks down.

  • You need 25 times your annual spending saved up to retire
  • This means you need about 300 times your monthly budget saved to retire (25 x 12).

Here are a few examples:

  • If you spend $50,000 per year in retirement, you need $1.25 million invested to retire
  • If you spend $60,000 per year in retirement, you need $1.5 million invested to retire
  • If you spend $100,000 per year in retirement, you need $2.5 million invested to retire

What's interesting about the 4% rule is that it doesn't take into account your retirement age. As soon as you've saved enough you can retire. Whether that is 35 or 65.

If you are closer to retirement you may not be able to save enough before you retire to only withdraw 4% each year. Instead, you will have to “draw down” the balance. Taking more than 4% will slowly deplete your retirement savings and you risk running out of money. But it's still better than saving nothing.

If saving enough to take advantage of the 4% rule is out of the question, use a retirement calculator to determine how big your retirement fund needs to be.

Related: How much do I need to retire

Figure out how much you can save per month

Once you’ve reverse-engineered how much money you need to invest to retire, you can now start making a plan to invest on a regular basis. The best investors choose to invest every month, growing their portfolio by dollar-cost-averaging (DCA) into the market. This means every payment, every month, you are investing a set amount, letting your investments grow with the power of compound interest.

To figure out how much you can save, you’ll need to create a budget. This will show you how much you have left over each month to put toward investments.

Once you know how much you can invest, it’s a good idea to input your savings into a retirement calculator. It will give you an idea of how much you can expect in returns over a long period of time.

For example, if you are 25 years old and can invest $500 per month at an 8% return, your investments can grow to $2.6 million by the time you’re 65 years old!

Play with the numbers to figure out how much you need to save to hit your retirement goals.

Related: How to start investing

Invest in a retirement account

Now that you know how much to invest each month, you’ll want to choose which accounts to invest in. Retirement accounts are tax-advantaged investment accounts that help you save on taxes while saving for retirement. There are limitations to each type of account, and different tax strategies to choose from.

Here’s how the popular retirement account options work, and which to choose for your retirement goals:


A 401(k) plan is an employer-sponsored retirement account that is typically available from your day job. While not all companies provide access to a 401k, many do, and it can be a great way to save for retirement.

With a 401(k) plan, you can save money directly from your paycheck. Each 401(k) plan usually has a custodian that handles the investments (such as Fidelity), and there is generally a preset selection of investments to choose from.

401(k) Tax Advantages, Employer Match, and Contribution Limits

If you elect to contribute to a traditional 401(k), you’ll also save on taxes at the same time. You contribute pre-tax money to the plan and your money will grow tax-deferred. This gives you a tax break today, but you'll pay income taxes on the money you withdraw in retirement.

If you choose a Roth 401(k) then you'll contribute after-tax money. This means you'll pay taxes today on that income but your withdrawals are tax-free in retirement. Note that employer contributions are put in a separate bucket and considered pre-tax income. Those contributions and their growth will be taxed as income. Your own contributions (and the growth from them) will be tax-free in retirement.

Many 401(k) plans also offer a “company match,” which means the company will put extra funds into your retirement account based on your contributions. Your company may offer a 50% match up to 6% of your salary, which means for every dollar you invest up to 6% of your gross pay, your company will invest $0.50. This is powerful as this is an instant 50% return on investment.

In 2023, 401(k) contributions are limited to $22,500 per year, or $30,000 per year if you are age 50 or older. You cannot withdraw from a 401k account until age 59.5 (outside of a few exceptions), so make sure to account for that in your retirement plans.

Even if you can't max out your contributions try to at least take full advantage of the 401(k) match.


An Individual Retirement Account (IRA) is another type of tax-advantaged retirement account that allows you to contribute pre-tax or post-tax dollars (more on that below) and invest toward retirement. The big difference between an IRA and a 401k is that you get to choose the company to invest with and have a much wider selection of investments to choose from. You must have earned income to contribute to an IRA.

You can contribute up to $6,500 per year, or $7,500 if aged 50 or older, in 2023. Like a 401(k) account, you can’t access the funds until age 59.5, with a few exceptions. There are two types of IRAs; the Traditional IRA and the Roth IRA. Here’s how each of them works:

Roth IRA

Roth IRA accounts allow you to contribute post-tax dollars, that is, take-home pay after paying income taxes. While you don’t save on taxes now, your money does grow tax-free, and you can withdraw it and pay no tax on your Roth IRA in retirement. If you anticipate higher taxes in retirement than when you’re working, this can help you save even more.

Roth IRAs also offer more flexibility than other retirement accounts as you can withdraw the contributions at any time (just not the investment growth). This allows you to access the funds before age 59.5. And there are no Required Minimum Distributions (RMDs) which allows you to leave the funds in the account as long as you want.

There are income limits to contribute to a Roth IRA. In 2023, if you’re single, you can earn up to $138K and contribute the full amount, and your contributions are phased out until you earn $153K and no longer qualify. If you’re married and filing a joint tax return, you can contribute more – up to $218K then phasing out at $228K.

Traditional IRA

Traditional IRAs are similar to a 401k account in that the contributions are tax-deductible in the year you contribute. This means for every dollar you invest in a Traditional IRA, it lowers your taxable income by that amount. If your income tax rate is high, a Traditional IRA can help you save more money in taxes upfront.

Traditional IRAs also grow tax-free, but withdrawing from a Traditional IRA account is taxed as income in retirement. There are no income limitations for contributing to a Traditional IRA, but there are RMDs. This means at age 73 you will have to start withdrawing from your account, even if you have no need for the funds.

Couple planning retirement laptop: How to save for retirement

Choose your investments

Now that you know the common types of retirement accounts, you will have to choose your investments inside of those accounts. While there are thousands of investments to choose from in over a dozen market sectors, it’s important to not get bogged down in the details. A simple, diversified investment strategy beats most professional investors over the long term, so we’ll cover some of the investment choices that can help you save time (and money):

Common index funds

Index funds are a portfolio of stocks or other assets bundled into a single fund that tracks the performance of a given market index. For example, the Standard & Poor's 500 (S&P 500) is a popular stock market index that tracks the performance of the top 500 companies in the U.S. If you buy an S&P 500 index fund, you own a piece of each of those companies.

Index funds are typically very low cost as there is no active fund management, so fees are almost nonexistent. You can invest directly in the index fund through your preferred broker (such as Vanguard or Fidelity), or purchase shares of index fund ETFs through investing apps like M1 Finance.

Additionally, platforms like Webull offer access to a wide range of investment options, including index funds and ETFs, with user-friendly interfaces and competitive pricing.

You can learn more about index funds here.

Target date funds

Target date funds are a passively managed portfolio of index funds and other assets that automatically rebalance as you get older. These funds are designed to be more aggressive in their investments when you’re younger (and can take more risk), and get more conservative as you get closer to retirement.

Target date funds are named for the anticipated year of retirement. You can invest in a target date fund based on when you think you’ll retire, and the fund’s asset allocation is tailored to that date. For example, Vanguard’s Target Retirement 2060 fund anticipates a retirement date of 2060, so the fund will be more aggressive now, and become more conservative as it gets closer to the year 2060.


Bonds are corporate or government-backed debt that is funded by investors. When you buy a bond, you are buying a loan that will pack you back (with interest) over time. Bonds come with a maturity date when the total balance will be paid back in full. You can then use the earnings to reinvest or withdraw.

You can also buy bond index funds that hold a mix of thousands of different types of bonds with differing maturity dates. This allows you to diversify your bond holdings and potentially generate better returns.

Bonds are seen as a “safer” investment than the stock market, but they also don’t generate as high returns. And bonds are subject to risks as well, such as increasing interest rates, which can hurt their long-term performance. But overall, bonds are seen as a reliable way to generate income in retirement.

Set up automatic investments

The best way to hit any financial goal is to automate it. Once you’ve chosen your investment accounts and the types of investments you want to invest in, it’s time to commit to your plan. You can set up recurring investments that contribute to your retirement accounts without you having to lift a finger.

For your 401k or other workplace account, you can contact your HR department and let them know you want to contribute to your retirement account. Choose what percentage (or dollar amount) you can contribute each month, and you will be enrolled in the plan. Your contributions will come out of each paycheck automatically. 

For IRA accounts, you can set up automatic investments in your account dashboard. Most IRA companies allow you to set up recurring deposits on a weekly, bi-weekly, or monthly basis, and will automatically invest them into your chosen investments.

Automation is the key to consistent investing. You can take the emotion out of the equation, and invest every paycheck, every month, no matter what the market conditions are. This will grow your wealth in the background until you retire.

Related: How dollar cost averaging works

Increase over time until you’ve met your goal

Once you’ve automated your retirement contributions, you can increase your contributions over time to speed up your path to financial independence. If you get a raise at work or a new job with a pay bump, commit to contributing some of that new income toward retirement. And if you can increase your contributions by just 1% per year, you’ll end up growing your retirement accounts at an exponential rate.

Remember, the goal is to reach financial independence sooner so that you own your time. Following this simple path to retirement is the shortcut to financial freedom, so don't wait another day to get started.


Is saving $1,000 a month good for retirement?

Yes, it's amazing! Most people are not saving this much and you are doing great. I think the real question here is “Is it enough?” and that really depends on what your retirement goals are and how long you have to save.

What about the rule of thumb to save 15% of your income for retirement?

There are several rules of thumb about what percentage of your income you should save for retirement. Whether or not they will fit your needs depends on how much you want to have saved and your current age. If you are younger, 15% might be perfect. If you are getting closer to retirement, 15% probably isn't enough to meet your goals.

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.