Saving for the Future: Strategies to Build a Good Retirement Plan

Planning for retirement isn’t a one-step process but a multi-step one that develops over time. You might have many plans for when you retire, but making sure that you have enough to fund those plans is just as important. To do this, you’ll need to prepare a proper retirement plan: set your goals, consider how long you have to meet them, look at your retirement account options, save money, invest that money, and eventually, deal with taxes.

Set Your Goals

The first step to building your retirement plan is to set your goals. Ask yourself: “How much do I need to retire?” The answer mostly depends on how much you’re making now and what kind of lifestyle you’d like to live in the future. A Schwab 401(K) survey found that the average participant thinks that they’ll need to save at least $1.9 million to retire, 12% higher than the previous year.

Experts usually say that your retirement income should be about 80% of your pre-retirement salary. You can then adjust depending on other income sources (like social security or pensions), part-time employment, your health, and your desired lifestyle. For instance, you’ll need more than 80% of your pre-retirement salary if you plan to travel a lot once you’re retired.

To determine how much money you need to save to get your desired retirement income, there are different formulas you can use.

The 4% Rule

This formula involves adding up all your investments and withdrawing 4% of the sum during your first retirement year. In succeeding years, adjust the amount you withdraw to account for inflation. For instance, if the sum of your investments is $1.9 million, you would need to withdraw $76,000 in your first year. If the cost of living up rises by 3% that year, give yourself a 3% raise the following year. This would mean you would have to withdraw $78,280 and so on for the next number of years.

Age-Based Formulas

You can also use these two formulas that will set age-based saving goals based on salary percentage. The first formula involves saving 15% of your gross salary from age 25 and investing 50% of it in stocks. By age 30, you should have about equal the amount of your annual salary in accumulated savings. Fidelity provides a savings benchmark that might be good to consider:

  • Age 40 — 2x annual salary
  • Age 50 — 4x annual salary
  • Age 60 — 6x annual salary
  • Age 67 — 8x annual salary

The second formula, on the other hand, involves a more aggressive approach to the first formula. You would need to save 25% of your gross salary every year, starting in your 20s. Following this formula, you should be able to accumulate your full annual salary at age 30. Using the same average savings rate will give you the following:

  • Age 35 — 2x annual salary
  • Age 40 — 3x annual salary
  • Age 45 — 4x annual salary
  • Age 50 — 5x annual salary
  • Age 55 — 6x annual salary
  • Age 60 — 7x annual salary
  • Age 65 — 8x annual salary

Knowing how much you need to save, when to save it, and how to make your savings grow will prepare you for any possible shortfalls in the future.

Choosing the Right Retirement Plan

Retirement plans have different benefits and features, so finding the right one for you might prove to be a challenge. The good news is that you can have more than one.

Individual Retirement Accounts

Individual Retirement Accounts, or IRAs, are accounts set up in a financial institution and allows an individual to save for retirement on a tax-deferred basis. Simply put, these are tax-advantaged accounts that hold your investments. There are seven types of IRA depending on your needs:


The most popular of the individual tax-advantaged accounts, traditional IRAs are for people who’d like to supplement their retirement savings. Any individual with a taxable income is eligible for this type of IRA. You’ll get an upfront tax break but will also have to pay taxes once you withdraw during your retirement.


Compared to the traditional IRA, Roth IRAs don’t offer an upfront tax break. However, your withdrawals in retirement will be tax-free. The maximum annual contribution for Roth IRAs is $6,000, or $7,000 if age 50 and above. Your eligibility for this type of IRA is based on your income. If you earn less than $140,000 a year, then this is a good option to consider.


Also known as Simplified Employee Pension, this type of IRA is set up and funded by your employer, who can receive a tax deduction for their contributions to the SEP IRA. Typically, they make contributions to eligible employees’ plans on a discretionary basis.


If you have a retirement plan at work and your income surpasses that of the IRA income limits, then you might not be able to deduct your traditional IRA contributions. The good news is that your non-deductible contributions will grow tax-free.


For married taxpayers, if one spouse isn’t working, you can still both contribute to your respective IRAs. Couples have to file a joint tax return and have taxable compensation to be eligible for this kind of IRA. The contribution limits are the same as traditional or Roth IRAs, and the total amount contributed to both IRAs should be lesser than your joint taxable income.


A SIMPLE or Savings Incentive Match Plan for Employees IRA is similar to an employee-funded 401(K). This kind of IRA is meant for small businesses and self-employed individuals. Employees can contribute to the account through a salary deferral, and some plans let employees choose the financial institutions where they’d like to hold their account.


Self-directed IRAs are similar to regular IRAs in terms of tax benefits. The only difference is that self-directed IRAs allow you to decide what you want to invest your IRA in. You can invest in private lending, tax lien certificates, real estate, LLCs, precious metals, stocks, etc.

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Calculate Your Net Worth

To ensure that your retirement goals are on track, calculate your net worth at least once a year. To do this, you need to find the difference between your assets and liabilities. Assets include cash and cash equivalents, investments, real property, and personal property. Liabilities include mortgages, car loans, credit card balances, medical bills, and student loans.

Subtracting your liabilities from your assets gives you a good idea of where you stand at the moment in terms of retirement.

Ask for Help

If you’re not sure how to go about saving and investing for retirement, do a bit of research or contact a financial advisor to help you understand how. There are numerous ways to gain information about retirement planning to fit any budget, and even spending a little time studying can go a long way. Don’t hold yourself back with the words “I don’t know how to do it.” Instead, find out how to do it.

If you want to improve your chances of enjoying your retirement years, make sure to plan early, stay informed, and find help whenever you need it. There is a lot to consider when planning for your retirement, and how much you need to save depends on things like when you want to retire, what you want to do, the lifestyle you want to live, and your healthcare needs.

Once you figure out how much you want to save, what retirement plan is best for you, and what you want to invest in, you’ll be able to refine your retirement strategy and look forward to a comfortable and fun-filled retirement.

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