7 Ways to Save More for Retirement

Quick Answer

Saving money for retirement can be simple if you start early, make a plan and use tax-advantaged accounts. Here are some tips to save more money.

Happy woman, using her laptop, at home office. Saving for retirement.

A TD Ameritrade survey found that 58% of Americans grade their retirement savings at a C or lower. If that sounds familiar, don't be too hard on yourself. Saving for retirement can be challenging for many, especially when you need your money to cover other financial obligations.

The average retirement lasts 20 years, the Department of Labor reports; ideally, you'll have the financial means to comfortably enjoy these years. Let's step in that direction by exploring some strategies to bolster your retirement fund. Here are nine of the best ways to save more for retirement, regardless of your income or age.

1. Start Now

The sooner you start saving toward retirement, the more time you'll have for compound interest to work its magic. Compound interest is the interest you earn from both your principal savings and the interest your account earns. Effectively, your retirement account earns interest on top of interest, allowing your total savings to grow exponentially over time. With a sufficient time frame for saving, the amount you'll eventually earn in interest will far exceed your principal balance.

For example, let's say you are 25 years old with no retirement savings but you start saving $250 each month until you are 65. If your retirement account earns 6% annual interest, you'll accumulate $464,286 by age 65. By contrast, a 35-year-old starting from scratch and following the same contributions plan would only have $237,175 by that age, a $227,111 difference. Of course, increasing your regular contributions can help you grow your nest egg significantly or help you reach your retirement savings target sooner.

2. Make a Plan

Saving for retirement becomes less daunting when you have a retirement plan. That starts by determining your ideal retirement age, the lifestyle you envision during retirement and the income you'll need to cover your living expenses, medical costs and other financial obligations.

We can turn to a couple of guidelines for a general idea of how much you'll need to retire. One is the 70% rule, which suggests you'll need at least 70% of your preretirement income to cover your expenses in retirement. Another is the 4% rule, which proposes you withdraw 4% of your retirement investments in the first year of retirement and adjust annually for inflation in subsequent years to make your savings last for 30 years. By estimating your annual retirement expenses, you can multiply that number by 25 to determine the total savings you'll need. Keep in mind, you may need to adjust this rule to fit your situation.

Next, determine how much you can save each month, while factoring in your potential investment returns, to help you reach your savings goals.

3. Save 15% of Your Income

Once you know your target retirement savings number, the most important step is to start saving. But how much should you save? Experts often recommend 15% of your income, if possible. However, you should save as much as you can reasonably afford, whether that amount is more or less than 15%.

The more you can save now, the more compound interest can build your retirement fund. If you can't save 15%, start with a monthly amount you can commit to saving right now, even if it's only $50. What's important is to establish the habit of stashing money away—if you haven't already—and try to up your contributions whenever possible.

The easiest way to contribute to your retirement account is to automate it. If your employer allows it, set up direct deposits from your paycheck to your retirement savings account.

4. Increase Your Contribution Every Year

Small changes over time, like increasing your retirement contribution by just 1% each year, can make an outsized difference in your retirement savings. This is primarily due to the effects of compounding interest. Even minor amounts grow substantially when they have sufficient time to compound.

According to Fidelity, a 35-year-old earning $60,000 who decides to boost their contributions by 1% of their salary (around $46 per month) would accumulate an extra $85,492 for retirement by age 67. This figure assumes a nominal investment growth rate of 5.5% and a nominal salary growth rate of 4%. Imagine how much additional savings you could accumulate if you continue increasing your contribution each year.

5. Take Advantage of Your Employer's 401(k) Match Benefits

Employer matches to 401(k)s are a valuable benefit you should maximize to boost your nest egg. The average employer match is 4.5% of an employee's pay, a 2023 Vanguard report states. If you deposit 10% of your salary into your retirement fund, and your employer matches your contribution up to 4.5%, you'd be setting aside 14.5% of your salary toward your retirement.

No matter how much your employer matches, aim to get every cent of that free money. It's like getting a pay raise that will grow over time with compounding interest.

6. Save Money in an Individual Retirement Account (IRA)

If you don't have access to a 401(k), or if you've maxed out your employer contributions, consider opening a traditional or Roth IRA to diversify your retirement savings. Traditional IRA contributions are tax-deductible and grow tax-free, but withdrawals in retirement are taxed. By contrast, Roth IRA contributions are not tax-deductible but allow for tax-free growth and withdrawals in retirement.

Remember, the IRS sets annual contribution limits to prevent high earners from benefiting more than the average worker. For 2023, the maximum annual contribution for traditional and Roth IRAs is $6,500, or $7,500 if you're age 50 or older.

Many financial experts recommend opening an IRA once you max out your 401(k) employer match. Then, after reaching the IRA's annual contribution limit, shift your attention back to your 401(k) and aim to contribute up to its yearly cap—$22,500 for 2023, or $30,000 for workers over 50.

If you're self-employed or own a business, consider opening a SEP IRA or a Solo 401(k), which offers substantially higher contribution limits. While they require a bit more effort to set up, the benefits may be well worth it

7. Make Catch-Up Contributions

Experts say you should have 10 times your preretirement income by age 67 to maintain your current lifestyle. Even if your savings target is lower than that amount, it can still be difficult for some to save what they need to retire.

Realizing many older individuals are behind on their retirement savings, the IRS allows those age 50 or older to make additional catch-up contributions above the standard limit. The 2023 annual contribution for this group is $7,500 for an IRA, or $30,000 for a 401(k). By maximizing your catch-up contributions each year, you can significantly boost your retirement savings, potentially by tens of thousands of dollars, especially when you factor in the power of compound interest.

The Bottom Line

Starting early is the best way to capitalize on the effects of compound interest and save more for retirement. Even if you're behind on savings, you can still improve your financial footing for retirement by creating a retirement plan that addresses your needs and making regular contributions to meet your goals.

Just as maximizing your employer match and saving up to your annual retirement contributions limits is important, so is maintaining a healthy credit profile. Generally, having a higher credit score can lead to more favorable interest rates when you borrow money. Free credit monitoring from Experian can alert you when there's a change to your credit report or credit score so there are no unexpected issues when you apply for credit.