Retirement Savings Strategies for Every Decade of Your Life

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Most of us dream about retiring comfortably, perhaps sipping Mai Tais in Hawaii or traveling through Europe with our partners. However, while many assume you can hold off retirement planning until the twilight of your career, it’s not a goal you can afford to ignore until tomorrow. 

Retirement planning is undoubtedly a test in delayed gratification — and it’s worth it.

It represents a chance to create goals and design the life you want for your future self, but it also requires focus, drive, and above all else, consistency

While there are reliable ways to build wealth in your 50s, saving from a young age gives you the best start. It allows your money time to compound, lets you weather bear markets, and helps you recover seamlessly so when you do need the money, it will be in good shape. 

Consistently planning and saving through the years can bring confidence, clarity, and security to your retirement plan. 

If there’s one takeaway here, let it be this: The earlier you start retirement planning, the better.

And yet, retirement planning won’t look the same throughout your life. That’s why you can use several strategies over time to best prepare for your golden years. 

Here are some things you can do each decade to ensure a successful retirement.

Your 20s are for Growth (Compound Growth)

Even though retirement may seem eons away, there are incredible benefits to saving in your 20s. 

Two words: compound interest.

Compound interest is interest that builds on top of itself; in other words, it’s interest that earns interest, giving it a large growth runway. 

Using a 401(k) retirement calculator, let’s compare who saved better: 

  • Saver 1: A 25-year-old graduate earns $60,000 and wants to retire by 65. They have $0 to start and plan to invest 10% of their income in a 401(k). Fast forward 40 years – their account is projected to be worth over $2.2 million!
  • Saver 2: A 35-year-old professional earns $85,000 and wants to retire by 65. We’ll assume this person also has a starting balance of $0. Even increasing their contributions to 15%, they are still only projected to have $1.9 million in the same time frame.  

This simple example illustrates the profound impacts of investing early. 

One of the best ways to start saving early is by contributing to your employer-sponsored retirement plan. You can ask your Human Resources department about options, and your employer may also match your contributions to a 401(k), 403(b), or similar retirement account up to a certain percentage. 

Yahoo Finance reports that 86% of US employers offer employees retirement plan contributions, with most matching between 3% to 5% of your salary. At minimum, you should at least contribute enough to qualify for a match – after all, it’s free money!

Another great option to start building compound interest is to prioritize Roth accounts.

Roth accounts offer numerous tax benefits like after-tax contributions, tax-free growth, and tax-free distributions. There are two common types of Roth accounts:

  • Roth 401(k) is a post-tax retirement savings account, meaning you pay taxes up front and don’t get taxed later (when you’d likely be in a higher tax bracket). Unlike a Roth IRA, a Roth 401(k) has higher contribution limits and no income thresholds for contributing.
  • Roth IRA also allows after-tax contributions and offers more investment options than a Roth 401k. They are also not subject to required minimum distributions (RMDs), which means you can be flexible about when you start taking money from your account. But there are income limits to direct contributions. 

You’ll likely earn more money the longer your career goes on, so since you’re in a lower income bracket now, it may make sense to pay taxes at a lower rate today instead of a future higher rate.

Whatever savings option you choose, it’s best to save 10% to 15% of pre-tax income in a retirement account. Think of it as a non-negotiable expense protecting and caring for your future self.

One more key strategy for your 20s is building an emergency fund. An emergency fund can be thought of as a non-negotiable expense protecting and caring for your immediate future self.

When setting it up, consider these two main factors: how much you spend each month (it’s generally best to save 3 to 6 months worth of expenses), and who you will need to support (think family, education, and medical expenses).

Want to retire early?

Download our free 'Done By 60' guide and start planning your retirement.

Start Thinking “Big” in Your 30s

By your 30s, you might be seeing some returns in your labor, like upward mobility and a higher salary. This also means it’s a great chance to catch up on retirement contributions, especially if you weren’t consistent in your 20s.

If you can, max out your retirement plans. The 2022 contribution limit for a 401k is $20,500. 

And if you weren’t disciplined at putting money away before, consider setting a goal this decade to save 15% to 20% of your pre-tax salary. With every raise, it’s also a great idea to increase the percentage of income you contribute to your retirement savings. 

Remember, this 15% marker doesn’t have to be all on you; it also includes your employer’s contributions to your retirement plan.

While your 30s are an ideal time for career advancement, many also experience a time of career change.

A 2021 survey from Fast Company found nearly 60% of middle-income adults would like to change jobs. If you decide to move employers, speak with your HR representative about rolling over your employer-based retirement plan into your new employer’s offering (or an IRA). 

Finally, since your 30s are for thinking big, start investing outside of retirement. Several advantageous investment ideas include:

  • A brokerage account (more flexible than a Roth account, with no limit on withdrawal)
  • A health savings account (HSA), which allows you to set aside pre-tax money for future qualifying medical expenses
  • A 529 plan (tax-advantaged college investment savings account)
  • A down payment on a house 

If you’re going to buy a home in your 30s, check out our ”Done by 60” guide to maximizing retirement. Before entering a mortgage, we recommend you commit to owning the house for at least seven years (which takes into account the costs of moving), and that you pay off any remaining debts (student loans, credit cards, etc.).

Many people find a groove in their 30s. Make sure you have a precise spending plan, contribute as much as possible to retirement savings and other investments, and top off your emergency savings. 

Climb the Ladder in Your 40s

Your 40s will likely be an era of further career growth and increased assets, and with only 25 years left in the workforce, they are also a pivotal time to build wealth. 

But you’ve been in the workforce for a couple decades now, and this is when it’s common to consider your career path and development. 

As an unofficial halfway point, your 40s are the perfect time to check in with yourself and ask meaningful career questions to evaluate if you are both fulfilled and adequately compensated:

  • Where do you want to grow? How can your company help or hinder?
  • Are you using all employer benefits offered? 
  • Are you eligible for equity compensation? If so, what type do you have? 
  • How can equity help further your goals?

You may be well established in your 40s, but it’s also a time when you may face more expenses than ever due to childcare, home improvements, debts, and car repairs (just to name a few). Be careful about the debt you take on.

Finally, remember to keep saving for education! The Education Data Initiative reports the average cost of education expenses in the US exceed $35k each year (per child), so keep that in mind when contributing to your child’s 529 Plan or similar savings account.

Keep Your Eye on the Prize in Your 50s

Your 50s are considered peak earning years, making this decade the perfect time to zero in on retirement savings. 

You can start making catch-up contributions here, so it’s important to know your 2022 contribution limits:

  • Workplace Retirement Plan Contribution Limit (401k, 403b): $20,500 with an extra $6,500 once you turn 50 
  • IRA Contribution Limit: $6,000 with an extra $1,000 as soon as you turn 50 
  • HSA Contribution Limit: $3,650 for self-only and $7,300 for families, with an additional $1,000 once you turn 55

We’ve all seen (and felt) the recent effects of inflation, which is a good reminder to reevaluate your retirement “number” and your monthly expenses. 

Your 50s are the perfect time to work with a financial advisor to assess how close you are to your goals and determine practical ways to “bridge the gap”, such as reducing spending on unnecessary items and increasing contributions to retirement and investment accounts.

It is equally essential to consider your ideal retirement lifestyle and set goals that motivate you. What do you want your life to look like? Are there things in your life that are (or aren’t) serving you well? 

Planning for your ideal lifestyle takes effort, but it’s an essential step to feeling fulfilled and at peace once you retire.

Lastly, focus on being debt-free, which carries many benefits as you prepare for retirement. Eliminating debt can free up cash flow, which you can then allocate to other priorities like maxing out your 401(k), IRA, and HSA. Taking these steps brings you closer to financial freedom and can add much-needed flexibility to your financial life.

Retirement is on the Horizon, Here’s How to Plan in Your 60s

You’re closer to the finish line, which means your desires may have changed, so it’s best to refine your retirement spending plan.

Start putting your lifestyle plan into action.

Think about questions that will help you pinpoint your goals and dreams for retirement:

  • Do you want to live somewhere new?
  • Are there any trips you would love to take?
  • Are your monthly spending projections for retirement still accurate?
  • What assets do you want to retain? Are you considering downsizing your home?

Another excellent takeaway from our ”Done by 60” guide to retirement is to work part-time, on your terms, doing something you love. Whether or not you still need that money, it will allow you to delay taking social security until age 70, which can benefit many people who expect to live into their 80s or longer.

Finally, consider creating a new healthcare plan. At 65, you’re eligible for Medicare, which is a great starting point, but Original Medicare has some coverage gaps. In addition to Original Medicare, you may need a supplemental plan such as Medicare Advantage, which often includes Part D for prescription drug coverage, and significantly lowers out-of-pocket costs. You can also look into Medigap or supplemental plans if an Advantage plan doesn’t work for you. 

A Bond Through the Decades

Every step of retirement planning is key to helping you live authentically: from your first retirement contributions in your 20s to diversifying your investments in your 30s; from preparing for expenses in your 40s to streamlining your financial plan in your 50s; from finally reaching your goals in your 60s and what lies beyond.

When creating a strategy, it’s crucial to work with a financial advisor you can grow with and trust. 

Abacus works to align your values with your goals, helping you create a retirement plan that’s both proven and personal, but with room to evolve as we evolve with you. Schedule a free call today with one of our advisors and get started.


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