We'll show you which retirement accounts are best for you, then walk you through how to figure out how much to save.

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We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. Here’s how we make money.

The best way to save for retirement is in a retirement savings account.

We’re not trying to be cheeky. Just super literal.

There are lots of different types of investment accounts, but retirement accounts like IRAs and 401(k)s were created specifically to give people incentives to save for retirement.

These accounts are some of the best deals going: Unlike regular investment accounts, they give you a tax break on your savings, either upfront or down the road when you withdraw funds. And in between, your investments are shielded from the IRS and grow without being taxed.

So when we’re asked how to save for retirement, our answer is to take full advantage of the retirement savings accounts available to you.

How to save for retirement in three steps

  1. Get your free money. We covered this in Chapter 1, but we’ll hammer it again: If your company offers an employer-sponsored retirement plan, like a 401(k), and matches any portion of the money you contribute, direct your first savings dollars into that account, at least until you receive the full match. If your plan doesn’t offer matching contributions, or you don’t have a workplace retirement plan, start with the next step.

  2. Contribute to an IRA. We’ll help you figure out which type of IRA is better for you — a Roth or traditional — in a moment. You can contribute up to $5,500 to an IRA each year (or $6,500 if you’re 50 or older).

  3. If you max out the IRA, turn back to your 401(k) or other employer plan and continue making contributions there.

Retirement investment account types in a nutshell

We just threw a lot of retirement-account-related particulars at you. Just wait until we get to the minutiae of the underlying tax code.

Kidding! We memorized all that stuff and have distilled it into plain English so that you don’t have to slog through it on your own.

Here are the must-knows about the main types of investment accounts for retirement savings — 401(k)s (which come in regular and Roth versions), the Roth IRA and the traditional IRA — starting with the pros and cons of each:

Now let’s figure out which type of IRA is right for you.

Roth IRA vs. traditional IRA

There are other types of IRAs, but the two biggies are the Roth and traditional IRA. The main difference between them is how taxes work:

Traditional IRA: The money you contribute may be deductible from your taxes for the year, meaning you fund the account with pretax dollars. You’ll pay income taxes on money you withdraw from the account in retirement.

Roth IRA: Contributions are not deductible — the account is funded with post-tax dollars. That means you get no upfront tax break as you do with the traditional IRA. The payoff comes later: Withdrawals in retirement are not taxed at all.

There are other differences as well. (Interested parties can take a moment to hear more from both sides in our Roth IRA vs. Traditional IRA deep dive.) But for most people, choosing between the two comes down to the answer to this question:

When you retire and start drawing money from your investment accounts, do you anticipate that your tax rate will be higher than it is right now?

Not sure how to answer that question? That’s OK: Most people aren’t. For this reason, and the pluses outlined in the table above, you may want to lean toward the Roth.

Taxes are low right now, which means most people who qualify for a Roth are probably going to benefit from its tax rules down the road. So, you’ll pay taxes now when your tax rate is low, and pull the money out tax-free in retirement, dodging the higher rate you expect later.

If you believe your taxes will be lower in retirement than they are right now, taking the upfront deduction offered by a traditional IRA and pushing off taxes until later is a solid choice.

Still undecided? You can contribute to both types if you’d like, as long as your total contribution for the year doesn’t exceed the annual limit. (See the contribution limits in the table above.)

Note: Some employers also offer a Roth version of the 401(k). If yours is one of them, follow this same line of thinking to decide whether you should contribute to that or the standard 401(k).

A word about IRA eligibility

Both traditional and Roth IRAs have restrictions in certain circumstances, which means that the choice between the two may be out of your hands. For example, if you earn too much, you may not be eligible to contribute to a Roth IRA. If you have a 401(k), you may not be able to deduct traditional IRA contributions at certain incomes. For a full breakdown of those limits and phaseouts, see Roth and Traditional IRA Contribution Limits for 2018.

Figuring out how much you need to save

Now that you know where to sock away money for retirement, the remaining question is: How much should you be saving?

Answer: As much as it’ll take to cover your retirement expenses.

OK, that time we were trying to be cheeky. But back to serious business: the brass tacks of calculating how much to save for retirement.

Aim to save at least 10% to 15% of your pretax income

That’s what most experts recommend, and it’s a good starting point for your own calculations.

If you decide that’s the only retirement savings math you’re going to do, you’ll be in pretty good shape. (Although if you’re a really late starter, you may have to make some adjustments.) But with just a little more effort, we can come up with a much more personalized retirement savings goal.

How much will you really need to retire?

That’s the million-dollar question (plus or minus several hundred thou).

But seriously — don’t be intimidated by the high dollar figures we’re about to bat around. Time (the passage of which will allow your investments to grow), tax breaks and compounding interest will provide the wind you need to propel your retirement portfolio returns.

We told you upfront we’d spare you any mathematical heavy lifting. True to our word, all you need is your current age, pretax income and current savings for NerdWallet’s retirement calculator to tell you how much money you need to exit the working world by age 67 (Social Security’s full-benefits age for those born from 1960 on), or whatever retirement age you choose.

Plug those numbers in below and you’ll launch our retirement calculator, which will open in a new page. The calculator will project how much monthly income you'll have in retirement, based on your current savings, as well as how much you'll need to sock away.

Don’t like what you see? Consider that these results…

  • Aim to replace 70% of your annual pre-retirement income, which is a standard formula for calculating retirement needs. Why only 70%? Because some expenses will be lower, like commuting costs. And remember,  you’ll no longer be saving 10% to 15% of your income for retirement.

  • Do not include any expected Social Security benefits, or any other sources of income, like a pension, rental income or part-time work.

With the right tools (an investing account that rewards retirement savings) and a little investing know-how (the rest of this guide will provide that in spades), you’ll be on your way to becoming the very picture of retirement readiness.

Practical matters

Ready to open an IRA? Opening a Roth or traditional IRA is a simple process you can knock out in less than 30 minutes.

  1. Choose an online broker and open your account: Provide your contact information, Social Security number (for tax purposes), date of birth and employment information.

  2. Decide how to fund it: The investment firm can walk you through the process of initiating a bank transfer or moving money from an existing investment account.

  3. Choose your investments: More about how to do that in the next chapter. But you can do the first two steps right now and return to this one later.

For detailed instructions on opening an account, as well as a list of NerdWallet’s top-rated IRA providers, see How and Where to Open an IRA.

Up next: Investing 101

Nothing intimidating here: In plain language, we'll walk you through what you need to know to start investing for retirement.

» Move on to Chapter 3: Investing 101