saving for retirement
Updated September 30, 2021

When Should You Start Saving for Retirement? 9 Essential Things to Know

Saving Money

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For many, retirement is both a blessing and a curse.

The idea of retiring, of finally being done with work seems so heavenly.

You’ll finally have time to relax, to enjoy your favorite hobbies you ignored before, and spend more time with friends and family members.

On the other hand, knowing the best ways to save money for retirement and navigating the savings and investing process — from the time you start working up until retirement day — can be downright difficult, confusing, and stressful.

No matter where a person is on their retirement savings journey, they have probably pondered the following questions:

  • When should I start saving my retirement money?
  • How much should I save?
  • How much money will I need to retire?
  • What if I can’t save enough?
  • I’m saving as much as possible, but it still seems I’ll fall short of my goal. What now?
  • How should I invest the money?
  • Will pensions and Social Security be enough?
  • Does my savings strategy need to change as I grow older?
  • What if I run out of time?
  • When can I retire?

As you can see, the queries range from curious to downright scary. Retiring with subpar savings — and the chance that you’ll run out in your lifetime — are terrifying ideas.

So, what is the best retirement savings plan? When should you start saving for retirement?

To help you gain a better understanding of the entire retirement savings process, we’ve broken all the crucial information you need to know into nine essential steps.

1. Know the Necessary Retirement Terms

The very first step in your retirement savings journey should be to educate yourself on the retirement and savings terms you will need to know throughout the process.

You can always learn as you go, but there is always a chance you may miss something in a conversation or signed paper.

Learn the following terms so you can be informed about how to save money for retirement.


A 401(k) is a retirement savings plan sponsored by a person’s employer.

It lets employees invest part of their pay prior to taxation while the savings are allowed to grow unimpeded by tax.

Many employers offer a 401(k) plan — usually by request — matching the employee’s contributed pay up to a point.


IRA is an acronym for “individual retirement account.” There are three types of IRAs: traditional IRA, Roth IRA, or Rollover IRA.

Usually set up by a financial institution, an IRA enables people to save for retirement without taxes impeding growth or on a tax-deferred basis.

Social Security

Social security is the bedrock of economic security for many Americans such as disabled persons, family members of retired, disabled or deceased workers and retirees.

Its goal is to provide monetary assistance to those with inadequate or no income.

Social Security trust funds are actually managed by the Department of the Treasury.


A pension is a specific type of retirement plan that provides retirement income on a monthly basis. However, not all employers offer pensions.

The goal is to have the employee accumulate retirement assets that are later doled back out to them per month upon retirement.

2. Assess Your Current Financial Situation

The first actionable step to take in creating a retirement savings plan is to review your current standing. There are many ways to do this, some easy and some a bit more difficult.

Net Worth

You need to know how much you are worth. In order to calculate this, take your assets (owned items, home, investment, cash, etc.) and subtract liabilities (expenses, emergency fund, etc.).

Your current net worth is simply a snapshot in time of your life right now and the choices you’ve made in the past.

It will also give you a good idea of the money you have available for activities such as savings accounts or investments.

Retirement Income Planning

The ultimate goal is to be able to evaluate if you are going to meet your retirement income goals by the time you retire.

A great method of evaluation is to check if you are putting the maximum amount allowed into your 401(k), IRA, or other accounts.

For example, Blooom offers a free 401(k) analysis, where it finds hidden fees and flaws in your current investments and plans.

After that, Blooom can help optimize your account and keep it on track.

You can find out more about how this program works by checking out our Blooom review.

Credit Report

Checking your credit reports at least once a year is important for a few reasons.

It can help identify when there has been a theft or if wrong information was reported.

Apps like Credit Sesame take the hard work out of finding your credit store, monitoring your information to find what is currently impacting your credit.

Then, it recommends how you can better your score, providing relevant products that can help you change your score for the better.

Read our Credit Sesame review for more information about the program.

3. Start Saving for Retirement as Soon as Possible

The real answer for when you should have started saving on your retirement may be surprising.

Many people assume it must be when you land your first adult job, possibly after university.

In truth, the ideal time to save is when you first start earning anything.

This applies for the job you had walking neighborhood dogs in middle school. Or the job you had bagging groceries at your local supermarket in high school.

Any time you had cash flowing into your account, it would have been possible to start saving for retirement.

In fact, the earlier you put money into a retirement account, the better, due to the principle of compounded interest (see #4 for more on that).

But, for those who didn’t start saving when they first starting working, putting money into a retirement savings fund is best done as soon as possible.

In order to do so, you need to look at your current financial situation and make a retirement savings plan.

Often, this will involve finding ways to cut spending so you can maximize the amount of money you have to put into the account.

Apps such as Cushion use bank-level security to analyze your accounts and then determine where money can be saved.

It can even cancel subscriptions, negotiate bills, and search for better options to maximize savings that you can then put into your retirement account.

Our Cushion review explains the process more in-depth.

4. Understand the Principle of Compounded Interest

The general rule for how much you need to save for retirement is a cool $1 million.

You may see that number and panic. If you’re thinking, “there’s no way I’ll reach $1 million!” you’re not alone.

So, how much do you need to save annually in order to reach that magic number?

It’s not as much as you may think.

If you can manage to put away roughly $4,500 per year over a 45-year career, you could have $1 million by the time you retire, according to an article published by Vanguard.

So, how does that work? Two words: compounded interest.

Compounded interest is a process where earnings are reinvested to produce their own additional earnings over time. The key point here is time.

Let’s look at the Vanguard article example.

You save $10,000 a year between 25 and 40 years old (15 years) and a friend saves $10,000 a year from age 35 to 65 (35 years).

By the time you retire, you’ll have more money (about $1.06 million) saved than your friend (about $840k), despite having put away only half as much.

This is because you started saving for retirement earlier, and the money compounded a lot in that early period.

Perhaps now you can see the importance of planning and saving for your retirement income as early as possible.

Make retirement a priority, especially at the beginning of your working career.

5. You vs. An Average American’s Retirement Savings

Around this time, you may be thinking “am I the only one that doesn’t know about all of this?”

You may even be wondering how your retirement savings stack up against your peers.

Let’s take a look at the average retirement and emergency savings by age group of people in America:

Average Savings of Those 20-29 Years Old

Millennials face massive challenges when saving, such as depressive student loan debt and plateaued wages.

A recent 2017 Bankrate survey found that Millennials are actually quite productive when making retirement contributions.

Millennial median retirement savings are roughly $31,000.

Projected twenty-something savings should equate to one year’s salary by age 30.

Average Savings of Those 30-39 Years Old

Those in their thirties may earn more but spend more as well on marriage or children.

The average retirement savings of those between 32 and 37 is $31,644, but it should be $67,000.

The recommendation is that a 35-year-old have twice their annual salary saved, and that number jumps to three times their salary by age 40.

Average Savings of Those 40-49 Years Old

While those in their forties may be earning much higher than before, saving money for any children’s education plays a large role in retirement savings.

Americans in their early 40s are estimated to have a median income of $67,000, with upper 40s making about $81,349.

Average Savings of Those 50-59 Years Old

People in their fifties should have a massive chunk of savings.

But data suggests otherwise, with those between 50 and 55 having saved $124,831 and those between 56 and 61 having saved $163,577.

That’ s nowhere near the $1 million mark. Even adding in the average Social Security monthly retirement benefit of $1,373 does not bring the number up much.

Average Savings of Those 60-65 Years Old

Those in this age group earn about $80,500 annually and their savings should be eight times that amount, coming to $644,000.

Unfortunately, most households don’t come close to that number, according to a Government Accountability Office report.

Click here to learn more ways to save money for retirement and other essentials.

6. Decide on Investing and Retirement Plans

The next thing to consider is where to save money for retirement.

You may not realize that there are a few different ways to save money for retirement, each with slightly different benefits.

As mentioned before, 401(k)s are a way of saving and growing money with the help of your employer.

However, if your employer does not offer a 401(k)-matching plan, then a deductible traditional IRA may be your answer.

Both types of savings plans are given tax advantages by the government.

If this sounds confusing, don’t worry.

Many apps out there can help. For example, Finhabits is a company dedicated to helping people invest and save for their retirement by making the process simple and efficient.

For help with solely investing, the Acorns app could assist you with your goals.

It walks you through investing in an easy-to-understand language and breaks down all of the investing components, so you can make informed decisions.

Check out our Acorns review to learn more about how Acorn works and whether it is worth it.

7. Generate a Passive Stream of Income

For those looking to save more earlier, there are two suggestions: get a side hustle and generate a passive stream of income.

A side hustle is any job or task you would do on the side of a normal 9 to 5 job. It could range from babysitting to apartment cleaning to photography to blogging.

Another idea is to generate a passive stream of income, which means earnings derived from an enterprise where you are not actively involved.

For example, this could include money from a rental property, limited partnership or book sales.

A passive income is ideal because once it is rolling, you do not have to do much of anything to keep the cash flowing in your direction and on into your retirement savings account.

Depending on the size of your passive income, you could even reach your retirement income goal and retire early.

Click here to discover 31 easy ways to generate passive income.

8. Turn Around a Late Start

At this point, you may be worrying, “I’m late to the game, what now?”

Short answer: There are two main things you can do to help boost your retirement savings.

Save More

The younger you are, the less chance you have of being horribly off target.

Use side jobs, generate passive income or even take on more work in order to save more.

The compounding on what you save now will really make a difference later on.

If you want to save even more, take a look at reducing all spending and saving from areas you previously hadn’t considered.

For example, consider cancelling any TV subscriptions, stop going out as much, using your public library, etc.

Change Goals or Work Longer

Here’s the hard part.

If you have calculated how much you need to save for retirement, there’s a very real chance that you may realize you’re nowhere near that amount and you’ve run out of time.

Option one is that you change your retirement goal and rethink what you’ll be spending your money on during retirement.

Option two is to work longer to make up the deficit.

It isn’t the answer you were looking for, but it’s the truth.

Click here to learn about quick, easy ways to make money with a side hustle.

9. Carefully Consider “Retirement Crisis” Media

There have probably been as many media reports of the “retirement crisis” in America as there have reports debunking them.

The “Retirement Crisis” Is Real

According to a 2018 PBS article, nearly 50% of Americans nearing retirement have under $25,000 saved and 25% have less than $1,000 saved.

The article explains how current trends in saving are falling much short of where they need to be.

Many elderly people will have inadequate savings to see them through to the end of their life.

The article also notes that in 2026, Medicare’s hospital trust fund is estimated to become insolvent.

If that happens, Medicare will not be able to reimburse expenses that cover nursing homes and hospitals.

Also, Social Security’s trust fund is estimated to run out by 2034, meaning payroll taxes will be the only revenue for benefit programs that help those in need.

The “Retirement Crisis” Is Not Real

In opposition, a Forbes article notes that while some people may fall short of savings goals, the median retiree’s income rose by 32% above inflation from 1990 to 2012.

During that time, median wages rose only by 11%, meaning that retirees had a greater ability to maintain pre-retirement standard of living.

Not only that, but incomes for lower-income retirees increased by 31% and poverty rates for those above 65 dropped from 9.7% to 6.7%.

The article notes that more Americans are collecting higher private retirement benefits and depending less on Social Security to cover the gaps.

A recent Gallup report stated that 78% of current retirees have sufficient money to live comfortably.

Where do you stand on retirement savings? Are you happy with how much money you’ve been able to save so far?

Let us know in a comment below!

If you’re looking for more ways to earn money and save money to ensure a comfortable retirement, we got you covered!


Logan Allec, CPA

Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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