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How to Save for Retirement

We all know it’s important to save for retirement. And yet we’ve talked to many folks who don’t have a single dollar in their nest egg. Why? A lot of them just don’t know how to save for retirement or where to start.

Ramsey Solutions conducted a study on the state of retirement in the U.S. and it found that nearly half of Americans aren’t saving for retirement.1 And even those who do save for retirement aren’t saving enough.

That’s a problem!

The good news is that people are thinking about it. In fact, 49% of Americans said saving money was one of their New Year’s resolutions for 2020.2 That’s right up there with eating healthier and getting more exercise as the most popular resolutions.

But wishing without action is just a pipe dream. You have to do something different if you want your habits—and your future—to change! And the truth is, saving for retirement is easier than you think. We’re going to cover three steps:

  1. Set a Goal for Your Retirement Savings
  2. Invest 15% of Your Income Into Tax-Advantaged Accounts Like a 401(k) and Roth IRA
  3. Going Beyond 15%—Max Out Your 401(k) and Other Investing Options

We're going to show you how to save for retirement step-by-step and give you a few practical ways you can turbocharge your savings plan today.

Let’s get started!

Step 1: Set a Goal For Retirement Savings

If you want to turn your retirement dreams into reality, you need to see where you are today, dream of where you want to go, and make a plan to get there.

What does your happily ever after look like? Take some time to sit down with your spouse or a good friend and really think about what you want to do in retirement. Are you sitting on a beach somewhere and sipping on piña coladas? Are you spending time hanging out with your kids and grandkids? When you can see your retirement dreams in high-definition, you’ll be more focused and ready to do what it takes.

Our investment calculator will help you figure out how much you’ll need to have saved for retirement. 

Step 2: Invest 15% Of Your Income Into Tax-Advantaged Accounts

Now it’s time to put your plan into motion! Once you’re debt-free (which means everything is paid off except for the mortgage) with a fully funded emergency fund (Baby Steps 2 and 3), you’re ready to start investing 15% of your gross income for retirement (Baby Step 4).

Here’s how you get started with your retirement savings:  

  • Get the 401(k) match. If your employer offers a traditional 401(k) with a match on your contributions, make sure you invest at least up to the match to take full advantage of that free money. Does your company offer a Roth 401(k)? Perfect! As long as you’ve got good mutual fund options, you can invest your whole 15% there.
  • Open up a Roth IRA. If you’re using a traditional 401(k) and you’ve invested up to the match, work with a financial advisor to open a Roth IRA. It’s a retirement savings account that lets you pay taxes on the money you put into it up front. That means the growth in your Roth IRA and any withdrawals you make after age 59½ are tax-free. That’s a win-win! For 2019, you can put a maximum amount of $6,000 into an IRA (or $7,000 if you’re age 50 or older).3
  • Go back to your 401(k). If you maxed out your contributions to your Roth IRA for the year and still haven’t hit 15%, then bump up your 401(k) contributions until you do.

Inside your 401(k) and IRA, your investments should be spread evenly between four types of growth stock mutual funds: growth and income, growth, aggressive growth and international. Look for funds that have a good track record over a long period of time.


How much will you need for retirement? Find out with this free tool!

There are lots of funds out there to choose from, so reach out to an investing professional who can help you make sense of your options and choose the best funds for your portfolio.

Step 3: Going Beyond 15%—Max Out Your 401(k) and Other Investing Options

Now that there’s nothing standing between you and building wealth like crazy, it’s time to start running up the score and put your retirement savings into high gear!

Here are some options for when you’re ready to invest beyond 15% of your income toward retirement:

  • Max out your 401(k) and tax-favored investment options. When you have extra money to invest, the first step is to max out your 401(k) and/or Roth IRA. If your Roth IRA is maxed out for 2019, you can put up to $19,000 (or $25,000 if you’re age 50 or older) into your 401(k).4
  • Open a taxable investment account. In most cases, you can’t take out money from your 401(k) or IRA before age 59½ without facing an early withdrawal penalty. The way around that is to open a taxable investment account. You can put as much money as you want into the account and take money out whenever you want, but you’ll have to pay taxes on any money your account earns.
  • Invest in real estate. Buying a rental property can be a great way to earn passive income, but there are some very important guidelines we want you to follow—like staying local and having an emergency fund set aside just for your rentals. But the most important one is this: we want you to pay cash for your real estate investments—no exceptions. Don’t put yourself at financial risk by financing a rental property. It’s a bad idea.
  • Take advantage of your HSA. With an HSA, you can save—and even invest—money to pay for deductibles and other medical expenses tax-free. And once you turn 65, your HSA acts like a traditional IRA—which means you can take out money for anything you’d like. But you’ll pay taxes on it when you do—just like a traditional IRA.

How to Save More for Retirement

The Retirement in America study found that, among those who are currently saving for retirement, seven in 10 wish they were saving more.5 So, what’s keeping people from going the distance? The truth is that saving for retirement is a challenge, especially when the expenses of right now stand in your way.

But there might be some potential savings hiding in plain sight right there in your budget.

Saving Tip #1: Cut Down Your Cost of Living

Our study found that, across all demographic groups, cost of living is the top reason people don’t save for retirement.6 And, while household incomes have finally bounced back to where they were before the 2008 financial crisis hit, the cost of living has increased by 18% during the last decade.7

That doesn’t leave much wiggle room for families to tackle everyday expenses. But that doesn’t have to spell disaster for your retirement! Here are two tips to help you stay on track:

  • Don’t spend your raises. A lot of people increase their lifestyle to match that income increase. A fancier car. A new kitchen. A nicer wardrobe. But remember: Investing 15% of your income also means investing 15% of any pay increases. As your income grows over time, those bumps in pay can add some serious cash to your nest egg!
  • Stick to a monthly budget. If you haven’t been budgeting, now’s the time to start! A budget helps you take control of your money and make a plan for every dollar. Tell your money where to go instead of wondering where it all went.

Saving Tip #2: Stop Overspending on Non-Essentials

Going out for lunch with your coworkers every day or signing up for that cable package with all those premium channels you never watch can leave your nest egg riding on empty.

A recent study found that the average American spends almost $1,500 on non-essential items every month.8 That’s almost $18,000 a year on things like eating out, impulse purchases and magazine subscriptions! We want you to enjoy life and have some fun! But don’t go overboard and let your fun hijack your future.

What if you just cut your non-essential spending by $150 per month and put that money into retirement savings for 15 years? By ditching your cable and canceling that gym membership you barely use, you could potentially add almost $70,000 to your retirement account. That’s nothing to sneeze at.

Are you already thinking about some things in your budget you might be able to slash? Here are a couple of my suggestions:

  • Check your insurance policies. When was the last time you reviewed your insurance policies? If it’s been a while, reach out to an independent insurance agent and see if they can find you a better deal on car insurance or homeowner’s insurance. You might be leaving hundreds of dollars in savings on the table! 
  • Cut down on the kids’ extracurricular activities. From guitar lessons to sports equipment, almost 40% of parents spend more than $1,000 each year on their kids’ extracurricular activities.9 That adds up fast! Limiting kids to one extracurricular per season or trading travel teams for rec leagues won’t only help with your budget, it also might increase your family time.

Saving Tip #3: Get Rid of Any Debts

The Retirement in America study found that almost one-third of savers who are in debt (31%) ranked credit card debt as a top reason they don’t save more for retirement.10

Debt isn’t just borrowing money you don’t have from the bank. It’s also borrowing from your future! Every dollar that goes to a debt payment is a dollar you could have invested. If you want to be serious about saving for the future, debt has got to go. Knock out your debt using the debt snowball method

We talked to thousands of millionaires to find out how they built wealth and what it takes to retire as a millionaire. And guess what? Not one of them ever said they got rich from their rewards points. The majority have never had a credit card balance in their lives and most of them never took out a student loan.

Why? Because millionaires know that debt will hold you back and prevent you from reaching your financial goals. Stay away!  

Stay Focused on Your Retirement Savings Goal

Remember: Retirement isn’t an age. It’s a financial number. Keep that goal in mind and remember that saving for the future is a marathon—not a sprint. We know how easy it can be to let life get in the way of your retirement savings. But, with the right plan and the right actions, you can enjoy your life now and still make progress toward your financial goals—even that million-dollar mark!

Ready to break through the savings barriers? A SmartVestor Pro can help you outline a plan no matter your financial situation.

Find a SmartVestor Pro today!

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This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

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About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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