Whether you’re in your 20s and just embarking on your career path or you’re a seasoned professional ready to step into the golden years, it helps to know the top retirement planning strategies. In this article, we’ll walk you through important money moves, some of which you may not have even considered. Read through these tips closely, and if you want some hands-on advice from an expert, check out our free financial advisor matching tool to connect with up to three financial advisors who serve your area.
1. Contribute the Maximum to a 401(k)
If you have an employer-sponsored retirement plan, you should take advantage of it and contribute as much as you can but certainly up to the company match, if there is one. For 2024, the 401(k) annual contribution limit will is $23,000, up from $22,500 in 2023. For employees over 50, there are also catch-up contributions. The total catchup contribution allowed in 2024 is $7,500, the same as in 2023.
And unlike simple brokerage accounts, your retirement funds grow tax-deferred. You fund these accounts directly from your paycheck before the IRS takes a slice. So contributing toward a 401(k) effectively reduces your taxable income.
And several companies that offer 401(k)s provide a Roth 401(k) option as well. While contributing to these plans won’t reduce your taxable income, you can start taking withdrawals tax-free once you reach age 59.5, as long as your account had been open for at least five years.
You can use our 401(k) calculator to project your returns and understand how to meet your personal savings goals.
2. Open an IRA or Roth IRA
Don’t fret if your company doesn’t offer a 401(k). You can open an individual retirement account (IRA) through a bank or a brokerage firm. These accounts offer many of the same benefits as 401(k) plans, including tax-deductible contributions and tax-free growth.
However, you’d have several more investment options. You can build your own portfolio with stocks, bonds mutual funds and more.
But if you’re concerned about taking a major tax hit when you begin taking money out of the plan in retirement, you can open a Roth IRA. These allow you to take tax-free withdrawals in retirement.
Just keep in mind that IRAs have a lower contribution limit compared to 401(k)s and other workplace retirement plans. In 2024, the IRS allows you to contribute up to $7,000 to an IRA, up from $6,500 in 2023. Savers who are 50 or older can add a $1,000 catch-up contribution.
3. Be Mindful of Risk Tolerance and Asset Allocation
No matter what types of funds you’re investing in through your retirement plan, it’s important to make sure it reflects your risk tolerance.
This should be the basis of your asset allocation. You can use our asset-allocation calculator to get a glimpse of what your portfolio may look like based on different risk levels.
4. Open a Health Savings Account (HSA)
When you retire, healthcare expenses will likely take a major chunk out of your hard-earned retirement income. In fact, a 2022 study by Fidelity estimated that a 65-year-old couple can expect to spend an average of $315,000 on healthcare expenses. So you’re going to want to prepare for that.
One way you can start gearing up to knock out healthcare costs down the road is by opening a health savings account (HSA). You can think of these as 401(k)s for your healthcare expenses. Your contributions are tax-deductible. And your earnings grow tax-free. And best of all, you can also make tax-free withdrawals as long as you spend the money on qualified healthcare expenses.
5. Beware of Retirement Fund Fees
Depending on what type of fund or funds you’re investing in through your retirement plan, you may face hefty fees. Every mutual fund, for example, has an expense ratio. This is basically the cost of managing the investment, so it reduces your returns. However, there are several low-fee options out there.
If you have a 401(k), your employer will mail you disclosure documents that detail all of the fees involved with your plan. Take a look at these to figure out which are the lowest-cost funds in your plan. In addition, you can visit websites like Morningstar that publish detailed data about funds, including their fees.
“You also want to make sure that you are using low-cost and extremely diversified investment options within your portfolio,” said Michael Mezheritskiy, president at Milestone Asset Management Group. “Internal expenses of funds, some ETFs, sales loads, commissions — all of that eats away at your bottom line. Therefore, you should always work with the fee-only advisor who always has your best interest at heart.”
6. Get an Annuity
One of the biggest fears striking Americans today is the idea of outliving their money in retirement. What happens if you’re no longer working and your investments aren’t doing too hot? You can buy a fixed annuity.
These are actually insurance products that provide lifetime income. You can use your retirement funds to buy one. The company issuing it will then provide you with monthly payments. There are several types of annuities out there, but some allow you to start receiving benefits right away, or you can defer them until a set date.
7. Take Advantage of the Saver’s Credit
The Saver’s Credit is worth a percentage of your contributions: either 10%, 20% or 50%. Which percentage tier you fall into depends on your filing status and adjusted gross income (AGI). The credit is worth up to $1,000 ($2,000 if filing jointly). The income limits for the credit in the 2024 tax year are shown in the table below.
2024 Saver’s Credit Income Limits
| Credit Amount | Single | Head of Household | Joint Filers |
| 50% of contribution | AGI of $23,000 or less | AGI of $34,500 or less | AGI of $46,000 or less |
| 20% of contribution | $23,000 – $25,000 | $34,500 – $37,500 | $46,000 – $50,000 |
| 10% of contribution | $25,000 – $38,250 | $37,500 – $57,375 | $50,000 – $76,000 |
| 0% of contribution | more than $38,250 | more than $57,375 | more than $76,000 |
So it helps to start contributing more toward your retirement plan. Those eligible for the Saver’s Credit can pocket in up to $1,000 ($2,000 for married couples). For instance, if you’re a single filer and your income qualifies you for the 50% credit tier and you contribute $1,000 to an IRA, you will be eligible to claim a credit of $500. You can achieve the maximum credit by contributing $2,000, which will get you a credit of $1,000. (That’s the maximum credit, so contributions of more than $2,000 will still get you a $1,000 credit). The math is generally quite simple for the Saver’s Credit. You don’t need additional worksheets or calculators, as with some other credits.
8. Delay Social Security Benefits
Social Security benefits alone may not be enough to support you in retirement, but there are several steps you can take to maximize your checks. For instance, you may want to work longer or delay taking benefits as soon as you retire.
Depending on the year you were born, you reach full retirement age sometime between 65 and 67. The full retirement age rises gradually from 1938 onward. Anyone born after 1960 reaches full retirement at 67.
It’s also important to plan accordingly with your spouse if you’re married. If your incomes are vastly different, it may be a good idea to delay starting to collect benefits for the higher earner. Be sure to use a Social Security calculator.
9. Hedge Against Inflation
Historically, inflation has clocked in at about 3%. So if you purchase something with $100, it could cost you $181 in 20 years. However, inflation was running at 3.1% by the end of January 2024. Inflation can be a significant hurdle that your investments have to top. That’s why it’s crucial to come up with a savings strategy and contribute as much as you can toward low-fee investments.
10. Develop a Retirement Plan Withdrawal Strategy
The 4% Rule for withdrawals calls for you to draw down 4% of your retirement account in the first year of retirement and then adjust subsequent withdrawals for inflation. This may be too little or too much, depending on your financial situation. So it’s important to start planning as soon as possible. Remember, you’d need at least as much as you’re making now just to cover your lifestyle as it is now.
“The best advice that we gave to our clients is to start to plan early and often,” said Mezheritskiy. “That means that at least five years before your retirement date, you should have a plan in place where we run through different scenarios using a Monte Carlo simulation to see whether or not your time frame of retiring in five years is feasible.”
With your financial advisor, you want your planning strategy to be comprehensive and consider whether you’re ready to retire and how much money you’ll be able to take out each year in retirement should you decide to stop working.
“We can take a look at your Social Security claiming strategies, pension options, changes to your asset allocation within your portfolio,” Mezheritskiy added. “All of this needs to start to be looked at least five years out in our opinion.”
Bottom Line
Careful planning can really pay off when you step into your golden years. It’s crucial to save as much as you can in tax-advantaged retirement plans while you’re working. If your company doesn’t offer a 401(k), you can open an IRA or Roth IRA at a brokerage firm. In fact, you can have both a 401(k) and IRA if you want. In addition, you’ll likely want to consider how you can maximize Social Security benefits and invest in other accounts such as HSAs or annuities.
Tips on Retirement Planning
- A financial advisor could help you create a financial plan for your needs and goals. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- It’s important to start saving for retirement as soon as possible. But there are also several steps you can take if you’re a late starter planning for retirement. The first step begins with estimating how much money you will need.
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