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When to Start Saving for Retirement

By Melanie Mannarino · February 24, 2022 · 10 minute read

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When to Start Saving for Retirement

If you ask any financial advisor when to start saving for retirement, their answer would likely be simple: Now.

It’s certainly not easy prioritizing investing for retirement. If you’re in your 20s or 30s, you might have student loans or other goals that seem more “immediate,” such as a down payment on a house or your kid’s tuition.

What Age to Start Saving for Retirement

Setting aside a little every year starting in your 20s could mean an additional hundreds of thousands of dollars of accumulated investment earnings by retirement age. Retirement is often considered the single biggest expense in many peoples’ lives. Think about it: You may be living for 20 or more years with no active income.

Plus, while your parents or grandparents likely had a pension plan that kicked off right at the age of 65, that may not be the case for many workers in younger generations. Instead, the 401(k) model of retirement that’s more common these days requires employees to do their own saving.

To see where you’re heading with your savings you could use a simple retirement savings calculator. But here are more basics on how to get started on your retirement savings strategy, at any age.

Investing in Your 20s

The earlier you start investing, the better off you’re likely to be. No matter how much or little you start with, having a longer time horizon till retirement means you’ll be able to handle the typical ups and downs of the markets.

Plus, the sooner you start investing, the more time you’ll be able to benefit from compound interest — the returns you earn on returns that help boost your savings.

Starting to save for retirement in your 20s is definitely not an instant-gratification move, but it’s something you’ll be thanking yourself for the rest of your life. Start by setting a goal: At what age would you like to retire? Based on current life expectancy, how many years do you expect to be retired? What do you imagine your retirement lifestyle will look like, and what might that cost? Once you have those details in place, you can decide how much to start saving right now.

Investing in Your 30s

If your 20s have come and gone and you haven’t started investing in your retirement, your 30s is the next-best time to start. While there may be other expenses competing for your budget right now — saving for a house, planning for kids or their college educations — the truth remains that the sooner you start retirement savings, the more time they’ll have to grow.

If you’re employed full-time, one easy way to start is to open an employer-sponsored retirement savings plan, like a 401(k). We’ll get into details on that below, but one benefit to note is that your savings will come out of your paycheck each month before you get taxed on that money. Not only does this automate retirement savings, but it means after a while you won’t even miss that part of your paycheck that you never really “had” to begin with. (And yes, Future You will thank you.)

Investing in Your 40s

When it comes to how much you should have saved for retirement by 40, one general guideline is to have the equivalent of your two to three times your annual salary saved in retirement money.

Once you have high-interest debt (like from credit cards) paid off, and have a good chunk of emergency savings set aside, take a good look at your monthly budget and figure out how to reallocate some money to start building a retirement savings fund.

Not only will regular contributions get you on a good path to savings, but one-off sources of money (from a bonus, an inheritance, or the sale of a car or other big-ticket item) are another way to help catch up on retirement savings faster.

Investing in Your 50s

In your 50s, a good ballpark goal is to have six times your annual salary in your retirement savings by the end of the decade. But don’t panic if you’re not there yet — there are a few ways you can catch up.

Specifically, the government allows individuals over age 50 to make “catch-up contributions” to 401(k), traditional IRA, and Roth IRA plans. That’s an additional $6,500 in 401(k) savings, and an additional $1,000 in IRA savings.

The opportunity is there, but only you can manage your budget to make it happen. Once you’ve earmarked regular contributions to a retirement savings account, make sure to review your asset allocation on your own or with a professional. A general rule of thumb is, the closer you get to retirement age, the larger the ratio of less risky investments (like bonds or bond funds) to more volatile ones (like stocks, mutual funds, and ETFs).

Investing in Your 60s

It’s never too late to start investing, especially if you’re still working and can contribute to an employer-sponsored retirement plan that may have matching contributions. If you’re contributing to a 401(k), or a Roth or traditional IRA, don’t forget about catch-up contributions.

In general, when you’re this close to retirement it makes sense for your investments to be largely made up of bonds, cash, or cash equivalents. Having more fixed-income securities in your portfolio helps lower the odds of suffering losses as you get closer to your target retirement date.

Different Types of Retirement Plans

Here are the most common types of retirement accounts and who can use them. This isn’t a comprehensive list of retirement accounts, so it might be a good idea to discuss retirement planning with a financial planner or accountant.

401(k) or Other Workplace Plans

A 401(k) is a workplace retirement account offered by employers. Typically, you contribute a portion of your paycheck, pre-tax.

One of the benefits of using your workplace’s retirement plan is that your company may offer a “match.” A match is when your company contributes to your account when you do. The median maximum employer match is 3%, according to the most recent data from the Bureau of Labor Statistics.

At the very least, you might want to contribute to take advantage of your match since it’s essentially free money. You don’t have to stop there though — in 2022, the IRS maximum 401(k) contribution limit is $20,500, with an additional $6,500 catch-up contribution allowed for those older than 50.

These accounts are tax-deferred, meaning you pay income taxes when withdrawing the savings in retirement. One of the many benefits of using a 401(k) or similar workplace plan is that it lowers your taxable income. For instance, if you’re making $85,000 and you’re contributing $10,000 annually to your 401(k), then you’ll only be taxed on $75,000 of that income.

One of the downsides to a 401(k) is that withdrawing these funds early could trigger a 10% tax penalty in addition to income taxes. Other workplace plans include SIMPLE IRAs, 403(b)s, 457 plans, and Thrift Savings Plans. If you’re self-employed, you could consider opening a Solo 401(k) or SEP IRA.

Recommended: SEP IRA vs. Simple IRA

Traditional IRAs

An Individual Retirement Account or IRA is another account you may use to save for retirement. An IRA is an investment account that is not tied to your workplace. That makes a traditional IRA an option for those that are self-employed or freelancers.

Like a 401(k), a traditional IRA is tax-deferred and provides a place for your investments to grow free from capital gains tax. Because the money is taxed upon withdrawal at retirement, a traditional IRA also carries a penalty for early withdrawal.

Traditional IRA accounts have a much lower contribution limit than 401(k) plans: $6,000 in 2022 , if you’re younger than 50. Those 50 and older can contribute $7,000 annually.

Recommended: What is an IRA?

Roth IRAs

Like a traditional IRA, a Roth IRA is an account that you can open on your own, separate from your workplace. Both individuals covered by workplace retirement plans and those who are self-employed can contribute to a Roth IRA, although there are income limitations.

It’s possible to contribute up to $6,000 into a Roth IRA each year, although exactly how much is tied to your income. In 2022, a single person earning under $144,000 can contribute at least some money to a Roth IRA. For married couples filing jointly, the modified adjusted gross income must be under $214,000 in order to contribute some money to a Roth IRA. As income goes down, max contributions increase until they hit the $6,000 cap.

Unlike a traditional IRA and a 401(k), which are tax-deferred, a Roth IRA is tax-exempt. You pay income taxes on the money that is contributed to the account, but you can withdraw money tax-free in retirement.

Like all retirement accounts, Roth IRAs are free of capital gains taxes, or the levies charged on money you earn from profitable investments.

Recommended: What Is the Current Capital Gains Tax Rate?

What Is a Wealth Management Account?

Like a 401(k) or an IRA, a wealth account is also an investment vehicle. But unlike an account designed specifically for retirement, these accounts do not have the same tax benefits.

You might consider using a wealth account if you want to invest for a goal other than retirement, or if you’ve “maxed out” (contributed the maximum allowable amount to) your retirement accounts.

Because a wealth account does not have the tax benefits of a 401(k) or IRA, it also doesn’t come with the same early withdrawal penalties. Wealth accounts are often called “after-tax accounts” because you contribute and invest money you’ve already paid income taxes on — and you pay taxes on the capital gains when you withdraw your cash.

Just like checking and savings accounts at banks, these accounts can also have maintenance fees.

Investing for Retirement

Once money has been contributed to a retirement account, it’s time to invest that money. To say “saving for retirement” is a bit misleading — really, it can be considered to be “investing for retirement.” And you can invest within any of the above — mentioned accounts.

If you have a workplace plan, you may be given a list of mutual funds to choose from. To choose a fund, you might want to determine whether the underlying investment is appropriate given your goals and risk tolerance. The categories are usually stocks, bonds, domestic equities, foreign equities, or emerging-market stocks and bonds.

You may also want to consider the management fees of the fund, called the expense ratio. This is usually expressed as a percentage which is subtracted from the amount invested each year.

For those without a workplace plan, you might want to open a retirement account, fund the account with cash, and then invest the money. Investors can do this by signing up for a traditional brokerage account if they want to pick and choose investments themselves. They might also consider a robo-advisor, or computer generated investing services.

Recommended: Are Robo-Advisors Worth It?

The Takeaway

Investing in retirement and wealth accounts is a great way to jump-start saving and investing for your golden years, whether you invest $10,000 or just $100 to get started.

The first step is to open an account or use the one that’s already open. You could also increase your contribution. If you’re opening an account, you may want to consider one without fees, which cut directly into your bottom line.

Ready to start saving for retirement? SoFi Invest® offers retirement accounts. You can also decide how you’d like to invest the money within the account. If you are comfortable picking out your own stocks and funds, SoFi Active Investing may be the service for you. The platform charges no commissions for trading stocks, ETFs or fractional shares.

For those looking for a more hands-off approach, SoFi Automated Investing will consider your goals, investing timeline, and risk tolerance to build you a diversified portfolio.

Get started with SoFi Invest today.


Is 20 years enough to save for retirement?

It’s never too late to start investing for retirement. If you’re just starting in your 40s, consider contributing to an employer-sponsored plan if you can, so that you can take advantage of any employer matching contributions. In addition to regular bi-weekly or monthly contributions, make every effort to deposit any “windfall” lump sums (like a bonus, inheritance, or proceeds from the sale of a car or house) into a retirement savings vehicle in an effort to catch up faster.

Is it too late to save for retirement at 30?

It’s not too late to start saving for retirement at 30. Take a look at your budget and determine the max you can contribute on a regular basis — whether through an employer-sponsored plan, an IRA, or wealth management account (or a combination thereof). Then start making contributions asap, and consider them as non-negotiable as rent, mortgage, or a utility bill.

Is 30 too old to start investing?

No age is too old to start investing for retirement, because the best time to start is today. The sooner you start investing, the more advantage you can take of compound interest, and potentially employer matching contributions if you open an employer-sponsored retirement plan.

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