How to Save for Retirement in 7 Steps

Feeling unprepared for retirement? The key is to figure out the bigger picture first (“how much do I need for retirement?) and then come up with a solution (“how do I save for retirement?”). We break down all the steps to help you create a personalized retirement savings plan.

7 steps to save for retirement

1. Run the numbers. 

2. Get familiar with different types of retirement accounts. 

3. Make a contribution plan as an employee (if available). 

4. Look into ways to save as a nontraditional worker. 

5. Choose your investments. 

6. Stick to your contribution plan. 

7. Learn about Social Security.

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.

To estimate how much you need to save for retirement, start by listing your current monthly expenses, then project how those might change in retirement. Factor in new expenses such as travel, hobbies, and other financial responsibilities. Finally, multiply this number by 12 to get your annual need. Comparing this number with your current income helps determine your “replacement ratio” — 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. As a general rule of thumb, a good place to start is to save 10% to 15% of your annual pretax income for retirement. High earners generally want to hit the top of this range, while low earners could hover towards the bottom if they expect Social Security to replace more of their income. From there, you can adjust as needed depending on your cash flow.

The 80% rule. Another approach is the 80% rule, which says you should aim to replace 80% of your preretirement 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.

» Want some help? We researched the best financial advisors

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:

» Our full list of the best retirement plans

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 this:

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, and 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 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 to take control. Here’s how to decide if that’s the right move and how to do a 401(k) rollover.

Then contribute to an IRA 

After contributing enough to receive a match, you can turn to saving for retirement in an IRA. The two most common are traditional and Roth:

• 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 you get no upfront tax break as you do with the traditional IRA. 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 is one of them, 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

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 $23,500 in 2025. People age 50 and older can contribute an extra $7,500 as a catch-up contribution. Due to the Secure 2.0 Act, those ages 60, 61, 62 and 63 get a higher catch-up contribution of $11,250

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 make investment selections, your contributions may just sit 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 or not 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.

By now, you’ve figured out how much you need for retirement, how much you can save each month, and which accounts — and investments — you’ll be investing in. From here, consistency is key — 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 as the market does during downturns.

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 an early 401(k) withdrawal

Step 7. If you’re close to retirement, learn about Social Security.

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.

The bottom line