The earlier you start saving for retirement, the better—thanks to the power of compounding. But it’s never too late to begin.

How much should you save?

Experts suggest saving 10 – 15% of your income each year. That might sound like a lot, but you don’t have to start there. Begin with what you can—say, 3%—and increase it by 1 – 2% annually.

Example:
If your employer offers a 401(k) match, contribute at least enough to get the full match. It’s essentially free money. For instance, if your company matches 50% of your contributions up to 6%, and you earn $60,000, that’s an extra $1,800 a year just for participating.

That being said, your savings goal depends on your lifestyle, location, and other assets. Use a retirement calculator to estimate your target. Consistent investing, even in small amounts, is key.
 

Why starting early matters

Let’s compare two friends:

• Emily, age 25, invests $440/month. By 67, she could have over $1 million, assuming a 6% return.
• Elliot waits until 30 to start. To reach the same goal, he needs to save $613/month and earn 7% annually.
  

That five-year delay costs Elliot thousands more in contributions and riskier returns.
 

How to save smarter

Set up automatic contributions—either through payroll deductions or scheduled bank transfers. This “set it and forget it” approach makes saving effortless.

If you don’t have a workplace plan, open an IRA. You can also explore brokerage accounts for more flexibility and HSAs for tax-advantaged health care savings.

Tip: Once you hit 50, you can make catch-up contributions—a great way to boost savings during your peak earning years.

Types of retirement accounts

• Workplace Plans (401(k), 403(b), 457):
  • Traditional: Pre-tax contributions; taxed on withdrawal.
  • Roth: After-tax contributions; tax-free withdrawals if conditions are met.
• IRAs (Traditional & Roth):
  Ideal for those without workplace plans, self-employed, or seeking more investment options.
• Brokerage Accounts:
  Taxable but flexible, with no contribution limits; ideal for extra savings.
• Health Savings Accounts (HSAs):
  Triple tax benefits and can be used for medical expenses now or in retirement, all tax free.
   

Investing for retirement

Saving is just step one—you also need to invest your money.

• If you’re decades from retirement, you might lean toward stocks for growth.
• Closer to retirement? Shift toward bonds and stable assets.

Your investment strategy should reflect your time horizon, risk tolerance, and goals. Diversify your investments to reduce risk. Consider target-date funds—they automatically adjust your mix of stocks and bonds as you approach retirement.

No matter when you plan to retire, diversification (dividing your money among different types of investments to temper overall risk) should be a vital part of your investing strategy. Mutual funds and exchange-traded funds (ETFs) hold anywhere from dozens to thousands of investments at once, so they offer a degree of “natural” diversification.

A target-date fund (TDF) can be an even better choice for retirement savers. These "funds of funds" invest in stock and bond funds, and their strategies grow more conservative as their target date—usually the year in the fund’s name—approaches.
 

Other options

• Annuities: Provide guaranteed income for life.
• Open in new windowPermanent Life Insurance: Most permanent policies can build cash value you can use as extra retirement income.
   

Create a retirement budget

Before you retire, map out your expected expenses:

• Essentials: Housing, food, health care
• Lifestyle: Travel, hobbies, dining out

A common rule is to withdraw 4% of your savings annually, but your needs may vary over time. Planning helps you avoid running out of money too soon—or being too frugal when you don’t need to be.
 

Know where your income will come from

List all your potential income sources:

• IRAs, 401(k)s, pensions
• Social Security
• Investments and savings
• Rental income or part-time work
   

Example:


If you expect to spend $50,000/year in retirement and Social Security covers $20,000, you’ll need to draw $30,000 from your savings or other sources.

Also consider an annuity, which can transform some (or all) of your retirement savings into lifetime income. If you want to retire soon or have done so already, you can buy an immediate annuity with a single lump sum and start receiving payments right away. This can give you a consistent cash flow to meet essential expenses. By contrast, a deferred annuity starts paying at a later date you choose.   

If you understand your full future financial picture, you’ll be better equipped to make important decisions, like when to start collecting Social Security and tap certain accounts.
 

When to claim Social Security

Social Security is the government program that provides an income safety net—and often more—for retirees.   

You can claim benefits from age 62 to 70. Delaying increases your monthly payout by 8% each year past full retirement age (up to 70). Your decision should reflect your health, income needs, and family situation. If you need cash to pay expenses in your early to mid 60s, have health problems, or your family history suggests you won't need to fund 30 years in retirement, you may want to claim benefits as soon as you can. If you plan to work in retirement or have other income sources, you might want to delay your claim.
 

Married?

Coordinating your benefits can maximize household income. For example, the higher earner might delay benefits to increase survivor benefits later.
 

Final thoughts

Retirement planning isn’t one-size-fits-all. The key is to start where you are, stay consistent, and adjust as life changes. Whether you're just beginning or catching up, every step you take now brings you closer to financial freedom later.

 

Provided courtesy of The Prudential Insurance Company of America, Newark, NJ.
Prudential does not provide tax advice.

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