If you’ve ever wondered whether you’re saving enough for retirement, you’re not alone. Many people struggle with the balance between enjoying life today, helping their kids, and preparing for the future. But retirement planning isn’t about following a strict formula. It’s about making intentional choices that fit your lifestyle, your family, and your long-term vision.
While the specific answer will vary for each person, the CFP Board recommends saving 15% of your current income for retirement, with benchmarks at ages 30, 40, and 50 to have saved your total annual salary, three times your salary, and six times your salary, respectively.
Another method is to assume a 4% to 5% withdrawal rate (meaning you would spend 4% to 5% of your nest egg each year in retirement). With that in mind, consider what you think you’ll need annually and multiply it by about 25 years. If you need $100,000 every year to support your lifestyle, that means you would need to save $2.5 million.
These formulas can be a helpful starting point, but the key is to prioritize your goals and create a plan that suits your unique situation. That’s our job as advisors—to help you articulate what matters most to you, identify what resources you have to support those goals, and help you allocate your resources in a way that aligns with your values.
Certain types of savings accounts offer tax advantages and growth opportunities. With a 401(k), for example, you can save pre-tax dollars, and employers will often match your contribution up to a certain amount. You can contribute up to $23,500 per year, and if you’re over 50, there is an additional “catch-up” contribution you can make.
Most 401(k)s allow for a Roth option as well, where you contribute after-tax dollars, the money grows tax-deferred, and you withdraw it tax-free. This is generally the more favorable option, because it provides tax-free income in retirement—granted, there’s no way to predict future tax rates or which bracket you’ll be in, and you might need the tax break now more than you will later. This, again, is where personalized planning is helpful.
You can also open a Roth IRA separate from your employer. These accounts allow you to contribute $7,000 annually, or $8,000 if you’re over age 50. They do have income caps (whereas 401(k)s and their corresponding Roth options do not), so for high earners, these accounts have their limitations. For individuals earning more than $150,000 annually (or $236,000 for married couples), the contribution limit begins to decrease, and at $165,000 ($246,000 for married couples), contributions are no longer allowed.
If you’re over the income limit, consider what your employer has to offer. Another option is to open a traditional IRA, which has the same contribution limits as a Roth IRA. However, if you’re already covered by a retirement plan through your employer, your income level may affect whether you can deduct your contributions to a traditional IRA. You might also consider a backdoor Roth IRA, which is something to discuss with your advisor. Beyond that, traditional investments are an effective way to grow your savings; they just don’t offer the same tax benefits.
Business owners and self-employed individuals have the option to use a SEP IRA, or simplified employee pension. With these accounts, you can contribute up to 25% of your self-employed income, with a maximum annual contribution of $70,000. These accounts don’t offer a Roth option, so you pay the taxes in retirement, but the contributions are tax deductible the year they are made. These accounts are great if you’re one of the many working Americans with an entrepreneurial “side hustle”—income from your second job can be used to fund a SEP, which can supplement any savings you have in a traditional 401(k) through your employer.
Saving for retirement is an important goal, but what about your other big plans? Maybe you want to help your kids pay for college, leave a legacy for your grandkids, or host a once-in-a-lifetime family vacation. These are all admirable goals, and a personalized financial plan can help you prioritize them appropriately so you can ensure your current and future needs are met. This is key, as you may discover that accomplishing some goals means modifying or forgoing others.
If you’re debating whether to prioritize retirement savings or another long-term goal (like education funding), we typically recommend focusing on retirement security. After all, your children can take out loans for school—you can’t do the same for your retirement.
The truth is, there isn’t a one-size-fits-all formula for retirement planning. Everyone is different, and it’s about finding the balance that works best for you. That’s why it’s crucial to work with an advisor who understands your goals and can help you create a detailed, personalized plan. From there, you should review your plan at least every few years to make sure you’re still on track for your goals. At our firm, we aim to meet with clients annually, reviewing their plan to ensure their strategies and habits are consistently in line with the life they want to build for themselves and their families.
If you’d like help crafting your custom retirement plan, or you want to review your current strategies, we’d be happy to help.