Saving for retirement provides financial security so you can maintain your lifestyle and reduce financial stress in your golden years.
Whether retirement is still decades away or just around the corner, the more money you can put aside for your golden years the better. Especially when you’re young, even small contributions toward a retirement savings account can be incredibly valuable.
An analysis by the Department of Labor found that a 20-year-old who saved $1,000 per year for 11 years and then stopped saving but let the money continue to grow would have a larger account balance at age 65 than a 30-year-old who saved $1,000 per year for 35 years in a row.
That’s because retirement savings set aside early in your career have more time to grow—and thanks to the magic of compound interest—can help you build a much larger nest egg than you’d have if you saved larger amounts later. Plus, if you’re investing in the stock market early, you’ll have plenty of time for your portfolio to recover from potential volatility in the near term.
Nearly 60% of non-retired American adults say that they’re not on track when it comes to retirement savings. If you’re among them, follow these steps for ways on how to save for retirement:
Save While Working Toward Other Financial Goals
Planning for retirement may not be your top money priority right now. You may also be working to pay down student loans or saving to buy a home. Rather than putting retirement savings on the back burner entirely, try to put at least a small amount of cash toward retirement savings on a regular basis.
In addition to allowing you to take advantage of compound interest, as discussed above, getting into the habit of saving for retirement now can make it easier to continue to practice throughout your career.
With Fifth Third's Retirement Planning Calculator you’ll be able to gain insight about retirement planning, such as if you’re saving enough and how much you should contribute to your retirement plan each year.
Take Advantage of Higher Limits
For most people, the best place to start saving for retirement is in tax-advantaged retirement accounts, such as your 401(k) at work or an individual retirement account (IRA). Money that you put into those accounts not only grew tax-free, but if you’re contributing to non-Roth accounts, it can also lower the income taxes you’re paying now, since they don't count as taxable income.
Although inflation has been hard on many people, one upside is that the Internal Revenue Service (IRS) increased the amount that you can save in these tax-deferred accounts. For 2023, you can contribute up to $6,500 ($7,500 if you’re age 50 or older) in total to traditional and Roth IRAs. That’s a $500 increase over the 2022 limits. For 401(k)s, the contribution limit has gone up by $2,000 to $22,500 in 2023 (plus an additional $7,500 for those over 50).
Save for Retirement Automatically
If you have access to a workplace retirement account, you’ve likely already set up automatic deposits through paycheck deductions. If, however, you’re saving on your own through an IRA, you may want to set up automatic contributions as well. That way, you won’t have to remember to set money aside for retirement.
Another benefit of automating your retirement savings is that you’ll adjust your spending levels to the amount left in your Fifth Third Momentum Checking Account®, meaning that it will help you live within your income.
Consider a Roth IRA or Roth 401(k)
Roth IRAs and Roth 401(k)s are another important option to consider when saving for retirement. Unlike traditional IRAs, with a Roth, you make contributions after taxes and then the money grows tax-free. That means you won’t get the tax deduction on your current taxes, but it also means you won’t have to pay taxes on the money when you make withdrawals in retirement. Roth accounts also don’t have required minimum distributions (RMDs) while the owner is still alive, so you’ll never be forced to take money out and give up additional tax-free growth.
Roth accounts may make sense if you think you’re going to face higher taxes in retirement (because you’re earning money or because tax rates have gone up). It can also be helpful to have retirement money in accounts with different types of tax treatment to give you more flexibility.
A growing number of employers now offer Roth 401(k)s as an option in their retirement plans. Or if you don’t have a workplace retirement plan and your income is less than $153,000 single filers (or $228,000 for married couples who file taxes jointly), you can open a Roth IRA.
If you make too much money to qualify, there are still ways to save money in a Roth. You can have a so-called "backdoor Roth" account by taking money in a traditional IRA and rolling it over into a Roth, paying the taxes that you owe on the money now.
Taking these steps can help you make progress toward planning your retirement goals and reduce financial stress both now and in the future. Then, you can spend your retirement enjoying your hard-earned savings, rather than worrying about whether you’ll outlive your nest egg.