5 Fastest Ways To Start Saving for Retirement, According to Experts

JJ Gouin / Getty Images/iStockphoto

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

No matter your age — whether you’re in your 20s, 30s or even your 40s or above — you can’t change how long you’ll have before your target retirement date. However, choosing wisely regarding investment products and strategies helps you save the most money in the least amount of time.

Here’s the expert advice to help you fast-track building your nest egg.

How To Invest for Retirement

You’ll likely need to invest to build your retirement savings. While everyone has a unique financial situation, there is an order of investing that typically maximizes your tax savings and helps bolster your retirement accounts faster.

Here’s the suggested order of operations when investing for retirement.

401(k) Match

If your workplace offers a 401(k) or other retirement plan such as a 403(b) or 457, your company may offer matching funds. These employer contributions match your contributions up to a certain percentage of your salary.

For example: Someone receives a 50% match up to 6% of your salary — meaning your employer deposits $0.50 for every $1.00 you contribute up to 6% of your total yearly salary. Don’t pass up on this “free money” for your retirement.

IRA

After your 401(k) match, open an individual retirement account. You can either pick your own investments or let a broker handle them for you. You can choose a traditional or Roth IRA, depending on how you want to save on taxes. A traditional IRA saves on taxes now, while a Roth IRA is tax-free in retirement.

Max Out 401(k)

After maxing out an IRA (or two, if you’re married), you can max out your 401(k) account. You can contribute up to $23,000 in 2024 — and an additional $7,500 if you’re 50 or older.

Consider an HSA

If you have access to an HSA-eligible health plan, you may consider contributing to an HSA. Contributions are tax-deductible, growth is tax-free and you can withdraw money whenever for medical expenses without taxes. The HSA is also a secret retirement account — you can withdraw funds for any reason after age 65 and pay regular income taxes on it, just like a 401(k) account.

Brokerage Account

After maxing out your tax-advantaged accounts, you can continue investing in a regular taxable brokerage account. These accounts are limitless and you can withdraw funds whenever, making them ideal for early retirement.

Types of Retirement Accounts Compared

Saving for retirement is important but choosing the right accounts can help give your retirement savings a boost.

The U.S. government has incentivized saving for retirement with the advent of several types of retirement accounts. You can save money on taxes and grow your wealth simultaneously.

Here’s a quick comparison of some popular retirement account options available today:

401(k) vs. IRA vs. Roth IRA: Which To Choose?

With so many retirement accounts to choose from, it’s a good idea to review the details of each before making a choice. Here’s when to choose a 401(k), IRA or Roth IRA.

When To Choose a 401(k)

If your company offers “matching funds,” the 401(k) can be one of the best investment accounts to choose. This is because your company gives you “free money” via matching contributions to your retirement account. These funds represent an instant return on investment and help grow your tax-advantaged retirement account quickly.

When To Choose an IRA

A traditional IRA account either lets you empower a broker to pick for you or choose your own investments.

Contributions are tax-deductible in many cases, and there are typically fewer fees than a 401(k) account. If you’re in a high tax bracket and need to lower your income taxes, a traditional IRA can be a good choice. And if your 401(k) account doesn’t offer matching funds and has high fees, an IRA can be a better investment account option.

When To Choose a Roth IRA

Roth IRA accounts don’t save on taxes right away but can be withdrawn tax-free in retirement. If you expect a higher tax rate later, a Roth IRA can be a good choice over a traditional IRA. Plus, Roth IRA contributions can be withdrawn tax and penalty-free at any time, making the Roth IRA more flexible than other account types. If you don’t want all of your retirement funds locked away, a Roth IRA can be a good choice.

How Much Money Do You Need To Retire?

This is the most popular question in the investing world and the answer is complicated. Luckily, some rules of thumb can help guide you toward an answer:

• Save 25 Times Your Retirement Spending — The most popular formula for calculating how much you need to retire is the “25x Rule,” based on the 4% safe withdrawal rate. The math shows you can withdraw 4% of your total portfolio for a 30-year retirement, meaning as long as you save 25 times your annual spending, you’ll have enough to retire. As an example: if you plan on spending $60,000 annually in retirement, you need $1.5 million to retire.
• Replace 80% of Your Income — Some financial professionals focus on your income and suggest replacing about 80% of your pre-retirement income. This means between your investments and other income sources you need to replace most of your income to quit your job. For example: If you make $100,000 per year, your investments and other income need to provide about $80,000 per year to retire.

To calculate your retirement number, there are some handy retirement calculators available to help guide you in the right direction.

The super simple retirement calculator on GOBankingRates allows you to plug in your numbers, including projected Social Security and other income, to show you how much you need to retire comfortably.

How Much To Save for Retirement

When saving for retirement, set an annual savings goal. In most cases, saving 15% of your salary is a good starting benchmark.

But saving enough depends on your financial goals, how much you need to retire, your expected investment returns and your investing time horizon. Each impacts your retirement planning and how much you should set aside.

For example: if you have 40 years until retirement and need $2 million, you’ll need to invest about $650 per month at an 8% annual return to hit your $2 million target in 40 years.

If you make $60,000 per year, setting aside $650 per month is about 13% of your annual income. Using the benchmark of a 15% savings rate makes a $2 million retirement very achievable.

But if you’re starting later, you’ll need to invest a lot more money.

For example: If you are age 45 and want to retire with $2 million, you’ll need to invest about $3,650 per month for 20 years at an 8% return. The longer you wait to invest, the harder it gets to save for retirement and the more you’ll need to save.

Cynthia Measom contributed to the reporting for this article.

Share This Article: