Feeling unprepared for retirement? If so, you’re not alone – 55% of Americans don’t feel financially prepared for retirement according to Empower’s 2025 Retirement Readiness Snapshot.
Starting might be the hardest part, but we'll break down all the steps to help you figure out the major questions: how much do I need for retirement, and how should I save?
Step 1. Run the numbers
Retirement planning centers on a big question: How much will you need? It can feel overwhelming to answer, especially since it depends on some things you do know and others you might not. These include:
- Your life expectancy.
- Your current spending and savings levels.
- Your lifestyle preferences in retirement.
For a working estimate, start by listing your current monthly expenses, then project how those might change in retirement. Some costs, like commuting, might drop, while others, such as travel, hobbies or health care, may rise. Multiply this number by 12 to get an annual figure that can be compared with your current income. This figure is your “replacement ratio,” or the percentage of your income you'll want to replace in retirement.
Two other approaches can give you rough estimates of how much to save for retirement.
Save 10% to 15% of your pretax income. This is a general guide, so you may need to adjust. High earners generally want to hit the top of this range, while low earners could hover toward the bottom if they expect Social Security to replace more of their income. Here are some examples.
| Annual pre-tax income | 10% saved per year | 15% saved per year |
|---|---|---|
| $50,000 | $5,000 | $7,500 |
| $75,000 | $7,500 | $11,250 |
| $100,000 | $10,000 | $15,000 |
The 80% rule. Another approach is the 80% rule, which says you should aim to replace 80% of your pre-retirement income each year to keep a similar standard of living in retirement. Some go as low as 70% whereas others shoot for a more conservative 90%. Using a real-world example, if you earned $100,000 annually before retirement, the 80% rule says you’ll need $80,000 per year in retirement income.
After you’ve got your estimate, use a retirement calculator to help you get a more precise savings target by factoring in assumptions like inflation, investment returns, and life expectancy.
And since life changes, so should your retirement plan. Review it regularly to stay on track. Whether it’s a change in income, a new financial goal, or unexpected expenses, checking in often helps you adapt before it’s too late. If you're unsure where to start, financial advisors and online tools can offer guidance tailored to your situation.
💬 Expert insight: Jamia Erickson, a senior financial advisor at Thrivent, based in Rochester, Minnesota
Erickson encourages people to ask questions of financial advisors and to do their research.
“Retirement planning can be complex, but a great advisor can help you simplify,” she said. “You don’t need to feel pressure to have all the answers. Your plan is your roadmap—asking questions for clarity and understanding empowers you to make smarter financial decisions that align with your goals and help you achieve what you value most.”
» Want some help? We researched the best financial advisors
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AD Advertisement Step 2. Get familiar with different types of retirement accounts
Depending on your employment status, you may have access to different types of retirement accounts. Below 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:
| 401(k) | Traditional IRA | Roth IRA | |
|---|---|---|---|
| Contribution limit | The annual limit for those under 50 is $24,500 and $32,500 for those 50 and older. In 2026, people age 60 to 63 can contribute up to $35,750 thanks to the Secure 2.0 Act. | The combined contribution limit for all of your traditional and Roth IRAs is $7,500 for 2026 ($8,600 if aged 50 and older). | |
| Employer match | Many employers offer a match, typically around 3%. | Some brokers may offer IRA matches. | |
| Tax treatment | Contributions lower taxable income in the year they are made. Distributions in retirement are taxed as ordinary income, unless a Roth 401(k). | If deductible, contributions reduce taxable income in the year they are made. Distributions in retirement are taxed as ordinary income. | No immediate tax benefit. Qualified withdrawals in retirement are tax-free. |
| Eligibility | Eligibility is not limited by income. | Deduction phased out at higher incomes if you or your spouse are covered by a workplace retirement account. | Ability to contribute is phased out at higher incomes. Contributions can be withdrawn at any time. |
| Investment availability | Funds in a 401(k) may be less expensive than identical funds purchased outside of 401(k). No control over plan and investment costs. Limited investment selection. | Large investment selection. | Large investment selection. |
| Required minimum distributions | Required minimum distributions beginning at age 73 (and will increase to 75 in 2033). | Required minimum distributions beginning at age 73 (and will increase to 75 in 2033). | No required minimum distributions in retirement. |
» Our full list of the best retirement plans
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Step 3. Make a contribution plan as an employee
How much you contribute every month to your retirement account depends on both your budget and what you have access to. If you work for an employer, your retirement contribution plan might look something like the following.
First, start with a 401(k)
An employer-sponsored retirement plan, such as a 401(k), is typically the best place to start stashing your retirement savings. That’s because of a few major perks:
- Automatic paycheck deductions.
- Employer matches (if offered) to boost your contributions.
- Tax advantages.
- A larger annual contribution limit over IRAs.
However, there can be drawbacks. Some 401(k) plans have limited investments and administrative fees could eat away at growth.
The bottom line? Consider investing up to the match and pay attention to fees. Even if it’s not a great plan, the money you contribute still lowers your taxable income for the year and you get tax-deferred growth on investment gains. If you leave your job, you might want to roll over the money into an IRA.
Then contribute to an IRA
After contributing enough to receive a match in your 401(k), consider turning to an IRA. The two most common IRAs are:
- Traditional IRA: Depending on your income and whether you have access to a workplace retirement plan, the money you contribute may be tax-deductible. You fund the account with pretax dollars and pay income taxes on money you withdraw from the account in retirement. Learn more in our guide to traditional IRA income and contribution limits.
- Roth IRA: Contributions are not deductible, as the account is funded with post-tax dollars. That means no upfront tax break, but the payoff comes later: Qualified withdrawals in retirement are not taxed at all.
» More on the differences between the Roth IRA vs. traditional IRA
Choosing between a traditional and Roth IRA depends on whether you think your tax rate will be higher or lower in retirement. If you believe your taxes will be lower than they are right now, taking the upfront deduction offered by a traditional IRA and pushing off taxes until later might be a solid choice. If it will be higher, or if you’re unsure, the Roth may be a better choice. If you’re 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.
Note: Some employers also offer a Roth version of the 401(k). If yours does, follow this same line of thinking to decide whether you should contribute to that or the standard 401(k).
» Ready to get started? Learn how and where to open an IRA
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 have a 401(k), you may not be able to deduct traditional IRA contributions at certain incomes.
If your income is above certain limits, you may not be eligible to contribute to a Roth IRA. For a full breakdown of Roth limits and phaseouts, read our guide to Roth IRA income and contribution limits.
Max out both, if you can
This next step depends on your budget and if you want to save even more for retirement. If you still have funds left over after maxing out your IRA contribution, consider upping your 401(k) contributions. The maximum you can contribute to your 401(k) plan is $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250.
New for 2026, high earners making over $150,000 in FICA wages in the prior year are required to put their catch-up contributions in a Roth account .
Step 4. Saving for retirement as a nontraditional worker
If you work a side hustle or temporary job, or are self-employed and run your own business, you can explore specific self-employed retirement plans to further boost your retirement savings.
Some examples of self-employed retirement plans include:
- Solo 401(k): Ideal for a self-employed person or business owner with no employees.
- SEP IRA: For self-employed people or business owners with few or no employees.
- SIMPLE IRA: Suitable if you have a larger business, but fewer than 100 employees.
» Learn more about self-employed retirement plans
Step 5. Choose your investments
Contributing to your retirement account is the first step, but your money won’t grow by itself. If you don’t choose investments, your contributions may just sit in cash in your account, missing out on potential long-term gains.
Most retirement accounts offer a range of options, including stocks, bonds, and mutual funds. You can also choose to participate in a target-date fund, which is a pre-built portfolio that shifts to more conservative investments as you get closer to your planned retirement year. How far away you are from retirement, your risk preference, and whether you’d like to be an active or passive investor can help determine what your portfolio looks like.
» A full overview of the types of retirement investments
Step 6. Stick to your contribution plan
After making all the decisions above, the key is now consistency. Automate your contributions through payroll deductions or recurring transfers to help you stay on track. As your income grows, come back to your contribution amount to see if you can increase it gradually.
Because the market fluctuates — and sometimes wildly — it’s normal to see the value of your retirement accounts go up and down. The longer you’re invested, the more chance your money has to recover with the market.
Sticking with your plan also means avoiding dipping into your retirement savings if you can. If you make an unqualified withdrawal, it’ll likely come with taxes and a 10% penalty, which could set your progress back in the long-term.
» What to know about an early 401(k) withdrawal
As you get closer to retirement, learning more about how Social Security works and how much you can expect to receive can round out your retirement income plan. You can start claiming benefits between ages 62 and 70, but starting earlier could reduce your overall benefits.
Other factors that affect your Social Security check: how much you earned during your working years, if you’re receiving spousal benefits, whether you’re enrolled in Medicare, and more. Calculate how much you might be able to receive with our Social Security calculator.
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- 1. Empower. Retirement readiness trends: Financial preparedness snapshot . Accessed Jun 8, 2026.
- 2. Internal Revenue Service. Retirement topics - Catch-up contributions. Accessed Jun 8, 2026.
