Saving for Retirement: How to Do it, and When to Start? | SoFi (2023)

By Melanie Mannarino ·July 10, 2023 · 14 minute read

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Saving for Retirement: How to Do it, and When to Start? | SoFi (1)

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

It’s not always easy to prioritize 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 child’s tuition. But starting early is important because it can allow you to save much more. In fact, 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.

No matter what age you are, putting away money for the future is a good idea. Read on to learn more about when to start saving for retirement and how to do it.

The #1 Reason to Start Early: Compound Interest

When should you start saving for retirement? In your 20s, if possible. That’s because if you start saving early, you could reap the benefits of compound interest.

Here’s how compound interest works and why it can be so valuable: The money in a savings account, money market account, or CD (certificate of deposit) earns interest. That interest is added to the balance or principle in the account, and then interest is earned on the new higher amount.

Depending on the type of account you have, interest might accrue daily, weekly, monthly, quarterly, twice a year, or annually. The more frequently interest compounds on your savings, the greater the benefit for you.

And the sooner you start saving, the more time compound interest has to do its work.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

Saving Early vs Saving Later

To understand the power of compound interest, consider this:

If you start investing $6,000 a year at age 25, by the time you reach age 67, you’d have a total of 1,055,703.27. However, if you waited until age 35 to start investing the same amount, and got the same annual return, you’d have $545,338.67.

AgeAnnual ReturnSavings

As you can see, starting in your 20s means you’d save almost half a million dollars more than waiting until your 30s.

Starting Retirement Savings During Different Life Stages

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.

As you get started on your savings journey, do a quick assessment of your current financial situation and goals. Be sure to factor in such considerations as:

• Age you are now

• Age you’d like to retire

• Your income

• Your expenses

• Where you’d like to live after retirement (location and type of home)

• The kind of lifestyle you envision in retirement (hobbies, travel, etc.)

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

Starting in Your 20s

Starting to save for retirement in your 20s is something you’ll later be thanking yourself for.

As discussed, 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 saving, the more time you’ll be able to benefit from compound interest, as noted.

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?

Then, create a budget, if you haven’t already. Document your income, expenses, and debt. Once you do that, determine how much you can save for retirement, and start saving that amount right now.

Starting 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.)

Starting 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 debt 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.

Starting 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 $7,500 in 401(k) savings, and an additional $1,000 in IRA savings for 2023.

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) you should have.

Starting 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 (see the information above).

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.

Types of Retirement Savings Vehicles

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.


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 2023, the IRS maximum 401(k) contribution limit is $22,500, with an additional $7,500 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.

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: $6,500 in 2023, if you’re younger than 50. Those 50 and older can contribute $7,500 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 $6,500 into a Roth IRA each year, although exactly how much is tied to your income. In 2023, a single person earning under $138,000 can contribute at least some money to a Roth IRA. For married couples filing jointly, the modified adjusted gross income must be under $218,000 in order to contribute some money to a Roth IRA. As income goes down, max contributions increase until they hit the $6,500 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.

💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.

Self-Employed Options

If you’re self-employed, you can save for retirement with a traditional or Roth IRA. Other investment options for those who are self-employed include:

Solo 401(k)

A Solo 401(k) is basically a 401(k) plan for self-employed individuals or business owners with no employees. The contributions made to the plan are tax-deductible, and the contribution limit is $22,500 in 2023, or 100% of your earned income, whichever is lower, plus “employer” contributions of up to 25% of your compensation from the business. For 2023, the total cannot exceed $66,000. (However, people age 50 and over are allowed to contribute an additional $7,500.)

SEP Plans (Simplified Employee Pension)

These are retirement accounts established by a small business owner or self-employed person for themselves. The contributions you make to the plan will reduce your taxable income. The money in the plan will grow tax-deferred and you will pay taxes on withdrawals in retirement. For 2023, the contribution limit is $66,000 or 25% of your earned income.

High-Yield Savings Account

A high-yield savings account, also known as a high-interest savings account, typically allows you to earn several percentage points more in interest than a standard savings account. Some high-interest savings accounts have an APY (annual percentage yield) of more than 4%.

And thanks to the power of compound interest, a high-yield savings account could help your savings grow even more.

Considerations When 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.

Here are some considerations to keep in mind when investing for retirement:

• Your risk tolerance and goals: 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.

• Fees. 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, to help maximize your bottom line.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.


What is the ideal age to start saving for retirement?

Ideally, you should start saving for retirement in your 20s, if possible. By getting started early, you could reap the benefits of compound interest. That’s when money in savings accounts earns interest, that interest is added to the principal amount in the account, and then interest is earned on the new higher amount.

Starting to save for retirement in your 20s can allow you to save much more. In fact, 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.

That said, if you are older than your 20s, it’s not too late to start saving for retirement. The important thing is to get started, no matter what your age.

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 25 too late to start saving for retirement?

It’s not too late to start saving for retirement at 25. 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 a combination of them. Then start making contributions, 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.

Should I prioritize paying off debt over saving for retirement?

Whether you should prioritize paying off debt over saving for retirement depends on your personal situation and the type of debt you have. If your debt is the high-interest kind, such as credit card debt, for instance, it could make sense to pay off that debt first because the high interest is costing you extra money. The less you owe, the more you’ll be able to put into retirement savings.

And consider this: You may be able to pay off your debt and simultaneously. For instance, if your employer offers a 401(k) with a match, enroll in the plan and contribute enough so that the employer match kicks in. Otherwise, you are essentially forfeiting free money. At the same time, put a dedicated amount each week or month to repaying your debt so that you continue to chip away at it. That way you will be reducing your debt and working toward saving for your retirement.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Saving for Retirement: How to Do it, and When to Start? | SoFi? ›

Ideally, you should start saving for retirement in your 20s, if possible. By getting started early, you could reap the benefits of compound interest. That's when money in savings accounts earns interest, that interest is added to the principal amount in the account, and then interest is earned on the new higher amount.

How early should you start saving for retirement? ›

Yes, you should start saving for your retirement in your 20s. Though retirement may seem far off, saving for it as early as possible will ensure you have enough money to get you through your retirement years.

What is the $1000 a month rule for retirement? ›

How Does the $1,000-a-Month Rule of Thumb Work? The $1,000-a-month rule states that you'll need at least $240,000 saved for every $1,000 per month you want to have in income during retirement. You withdraw 5% of $240,000 each year, which is $12,000. That gives you $1,000 per month for that year.

How do I start putting money away for retirement? ›

7 Steps to Save for Retirement
  1. Set Your Retirement Savings Goal. ...
  2. Use the 25x Rule to Calculate Your Retirement Needs. ...
  3. Determine Your Monthly Savings Rate. ...
  4. Open a Retirement Account. ...
  5. Employer-Sponsored Retirement Accounts. ...
  6. Individual Retirement Accounts (IRAs) ...
  7. Choose Your Investments. ...
  8. Set Up Automatic Recurring Deposits.
Apr 18, 2023

Is 25 too late to start saving for retirement? ›

Key Takeaways. It's never too late to start saving money for your retirement.

Can I retire at 45 with $1 million dollars? ›

SmartAsset: Can I Retire at 45 With $1 Million Dollars? Achieving retirement before 50 may seem unreachable, but it's entirely doable if you can save $1 million over your career. The keys to making this happen within a little more than two decades are a rigorous budget and a comprehensive retirement plan.

Can you live off $3000 a month in retirement? ›

Whether you want to retire in a big city or a small town, you can live comfortably in some places for $3,000 a month or less.

Can I retire at 50 with $500 K? ›

The rule implies that if you can get by on $20,000 per year, you should be able to retire with $500k for 30 years (or even longer). However, the reality is that you might not be able to live comfortably (and happily) on $20,000, depending on your circumstances and lifestyle.

Can I retire at 62 with $400,000 in 401k? ›

Can I Retire At 62 with $400,000 in a 401k? Yes, you can retire at 62 with four hundred thousand dollars. At age 62, an annuity will provide a guaranteed level income of $28,150 annually starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease.

What is a good monthly retirement income? ›

The average monthly retirement income adjusted for inflation in 2023 is $4,381.25, according to a 2022 U.S. Census Bureau report. The average annual income for adults 65 and older in 2023 is $75,254 – or $83,085 when adjusted for inflation.

How to retire in 5 years with no savings? ›

How You Can Retire in 5 Years Even Without Savings
  1. Make a Plan. First, you'll need to do some in-depth analysis of your spending, future costs and the steps you'll need to take in the next five years. ...
  2. Cut Costs. ...
  3. Pay Off or Refinance Debt. ...
  4. Save and Invest. ...
  5. Enlist an Expert. ...
  6. Bottom Line. ...
  7. Retirement Planning Tips.
May 10, 2023

What happens if you have no retirement savings? ›

Unless you have a secret plan to get free money or you're lucky enough to hit the lottery, not saving enough for retirement will leave you scrambling to get by in old age. At the very least, you'll need to work longer or make serious adjustments to your lifestyle to get by.

Can I retire at 45 with $3 million dollars? ›

And, while life expectancy can be estimated, no one knows for certain how long they will live. As a result, they can only approximate how long their nest egg will need to last. Retiring at age 45 with $3 million is quite feasible if you already have the money and your post-retirement income needs are not excessive.

Is Roth IRA or 401k better? ›

If you expect to be in a higher tax bracket in retirement, a Roth IRA may be a better choice. If you expect to be in a lower tax bracket, a 401k may be a better choice. Employer match: Many employers offer a matching contribution to 401k plans, which can help you save more for retirement.

At what age can you retire with $1 million dollars? ›

Yes, it is possible to retire with $1 million at the age of 65. But whether that amount is enough for your own retirement will depend on factors that include your Social Security benefits, your investment strategy and your personal expenses.

Is 30 too late to start retirement fund? ›

It's never too early to start dreaming big for your retirement, and it's never too late to start saving to make your dreams a reality.

Is saving for retirement at 30 too late? ›

You could decide to put off retirement for several years if you're healthy and enjoy your job. You can use the time to start saving and prepare for retirement expenses. “It may seem trite, but it's never too late to start saving for retirement,” says John Stoj, founder of Verbatim Financial in Atlanta.

Is 24 too late to save for retirement? ›

We want you to hear us say this: It's never too late to get started saving for retirement. No matter how old you are or how much (or how little) you have saved so far, there's always something you can do. You can't change the past, but you can still change your future.

Should I max out my 401k in my 20s? ›

The money that you contribute to a 401(k) in your 20s will have the longest time to grow and earn compound interest, so you should contribute as much as you are able in this decade. Aim for 15% if you are able. If you can't afford 15%, put in whatever you can.

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