When Should You Start Saving for Retirement?

Bill Nelson is a planning excellence lead consultant at Northwestern Mutual.  

Whether you’re just starting your career or have been working for years, the best time to start saving for retirement is now. The longer your money is invested, the more time you can benefit from compound interest—and that can help to increase the growth of your nest egg over time. While this leads some people to worry that they’ve waited too long to start saving, the point is that the best time to start is now. And even though it’s good to simply start saving, being strategic helps you squeeze more out of your dollars.  

When should you start saving for retirement? 

What is the ideal age to start saving for retirement? The golden rule is to save early and often. While you stand to benefit the most from getting an early start, it’s never too late to begin—even if you’re late to the game. 

Retirement accounts like 401(k)s and IRAs give you tax advantages as you invest your money and benefit from compound interest. The combination helps your money work harder because you’ll earn interest on your principal balance and any interest you’ve already earned in a tax-advantaged way. While market volatility is a reality for investments in the short term, staying invested over the long haul is one of the best ways to grow your money for a big goal like retirement. 

How much should I save for retirement? 

We looked at the average retirement savings by age in the 2024 Northwestern Mutual Planning & Progress study. We found a large gap between what people have and what they think they will need. On average, Americans have less than $89,000 saved for retirement. But they think they’ll need $1.46 million when they eventually retire.  

Averages are interesting, but the amount you’ll need to retire will be unique to you and will depend on your retirement goals and how much you expect your ideal retirement to cost. You’ll also want to factor in how long you anticipate being retired. The good news is that you don’t have to guess.  

Your Northwestern Mutual financial advisor can get to know you and ask the right questions to help you get a sense of what your retirement might cost. Then your advisor will partner with you to build a plan that accounts for opportunities and potential blind spots to give you the confidence that you’re on track to retire the way you want. 

When making your financial plan, it’s important to prepare for potential risks to your retirement income. That could include: 

• Outliving your money. 

• Market volatility.  

• Health care costs and long-term care. 

• Taxes and inflation.  

• Legacy planning. 

These are common blind spots that you can plan for. That way, you’re more likely to have the retirement you want. 

How to start saving for retirement today 

When you’re ready to take steps to start saving for retirement, the first steps may be easier than you think. Your financial advisor can help you be strategic about how you save—and how you draw on your savings when the time comes.  

Determine how much you can save 

Start by understanding your cash flow—how much money is coming in and where it’s going each month. It’s also known as “budgeting,” and it goes beyond monthly expenses and day-to-day spending. Good management of your cash flow can also involve putting some money away for the future. 

When it comes to retirement, the goal is to set a savings target personalized to you. Along the way, you might hear about a “budget hack,” which can be a quick checkpoint. First, think about your spending in categories. Essential spending is the non-negotiable expenses that keep your life running. You’re basically stuck paying them, so some people call them “fixed expenses.” Discretionary spending involves more leeway like choosing pricey clothes versus discount versions and dining out with friends versus cooking at home. Saving for an emergency fund, paying down debt and saving toward retirement can go in a “savings goals” bucket. 

Now look at your spending in the categories. The 60/20/20 rule suggests earmarking 60 percent of your take-home pay for essential spending, 20 percent for discretionary items like clothes and dining out, and 20 percent for savings goals. At Northwestern Mutual, we recommend paying yourself first, which means saving first and spending only if you have some money left over. You could think of that as a 20/60/20 rule. Either way, understanding your cash flow is an important step toward planning your financial future. 

To go beyond a quick checkpoint and truly see how much you can save now toward a personalized retirement goal, consider talking with your financial advisor. That’ll get you a long way toward a realistic amount to start saving for retirement today.  

Choose your retirement accounts  

When investing for retirement, there are several different types of retirement accounts that you can use, and each one has its own pros and cons. Here are some of the most common retirement accounts: 

• 401(k): These retirement plans are provided (or “sponsored”) by your employer. The plans allow you to make tax-deductible contributions up to a yearly limit. From there, your money will grow tax-deferred, which means you won’t pay taxes until you make withdrawals in retirement.  

• Traditional IRA: You can open and fund an IRA apart from your employer. Contributions may be tax-deductible. As with a 401(k), contribution limits and early withdrawal penalties apply. 

• Roth IRA: These IRAs are funded with money you’ve already paid taxes on. As a result, you’re entitled to tax-free withdrawals in retirement. (But there may be taxes and penalties if you’ve had the account for less than five years and tap your investment earnings before age 59½.) 

• Retirement accounts for self-employed people: If you work for yourself or own a small business, you could explore a solo 401(k), SEP IRA or SIMPLE IRA. These retirement plans are designed for self-employed folks and have unique tax advantages and withdrawal rules. 

Make regular contributions 

Once you’re clear on your retirement plan options, it’s time to start putting money into your retirement accounts. One approach is to set up automatic monthly transfers from your paycheck or checking account. That way, you are less tempted to spend the money. And investing the same amount regularly over time is known as dollar-cost averaging—and this discipline could help you feel more comfortable with volatility.  

People typically fund 401(k)s through automatic payroll deductions. Your benefits coordinator in Human Resources should be able to help get you set up. If your job offers an employer match, strive to get the maximum match. After all, it’s basically “free money.” 

Determine your asset allocation 

Investing always involves risk, but it’s often a necessary part of building your nest egg. It can also help you keep up with inflation during retirement. Your asset allocation, which reflects how your portfolio is invested, plays an important role.  

If you’re decades away from retiring, you may be comfortable taking more risk in your portfolio, which often means holding more stocks. But as you get closer to retirement, the general rule is to include a larger mix of fixed-income investments like bonds or certificates of deposit (CDs). Annuities also tend to be safer options for this portion of your savings.  

Your age, investment goals and risk tolerance will ultimately determine the right asset allocation for you. Your financial advisor can be a lot of help with figuring out your allocation. 

Mix in other savings strategies 

Keep in mind that retirement accounts aren’t the only way to save.  

• Taxable brokerage accounts are another way to make money by investing. They can be particularly useful if you’ve maxed out your 401(k) or IRA contributions but want to save more for retirement. These accounts are also pretty flexible. There are no early withdrawal penalties or contribution limits, though you will be taxed on capital gains. 

• Permanent life insurance can be really helpful. First, it protects your family by providing a death benefit. While you’re living, you can use its cash value to supplement your retirement income. 

• You can also use high-yield savings accounts, CDs and money market accounts to bolster your savings. These don’t offer the tax advantages of retirement accounts, but they can help you net steady, modest returns over time—especially when interest rates are on the rise. They can also help offset investment risk. 

Why it’s never too late to start saving for retirement 

While it’s ideal to kick-start your retirement savings early, you can really begin at any time—even if you’re in your 30s, 40s or 50s. You have to start somewhere, so begin where you are and get the momentum going. And forgive yourself for getting a late start. You may have fallen behind on retirement savings if you didn’t have access to an employer-sponsored plan. Or maybe paying down debt or buying a home took priority. Whatever the reason, here are some additional ways to get caught up now that you’re focused on retirement saving.  

Catch-up contributions 

Some tax-deferred retirement plans, such as 401(k)s and traditional IRAs, allow people who are 50 or older to contribute more than the annual limit. These catch-up contributions can help you get back on track with your retirement savings. Here’s how it works in 2025: 

You can start making catch-up contributions to your 401(k) and IRA at age 50 and at age 55 for your Health Savings Account (HSA). 

• With a 401(k), you can contribute an extra $7,500—or as much as $11,250 if you’re age 60 to 63. 

• With an IRA or HSA, you can contribute an extra $1,000. 

Another tip to catch up on retirement savings is to increase your contribution amount by 1 percent every month or quarter until you reach 10 to 15 percent of your income. Putting money into an HSA is another strategy. Contributions are tax-deductible. If you’re under age 65, you won’t be taxed on withdrawals that are used to cover qualified medical expenses (but HSA withdrawals used for other purposes incur a penalty and require you to pay income tax). 

Once you turn 65, the rules change, and you can use that money for any purpose—including retirement income—without penalty. Just keep in mind that you’ll still owe income tax if you use the money for non-medical purposes. 

Delaying retirement 

Holding off on retirement for just a few extra years could make a big difference in your savings. Again, compound interest is a powerful tool. Delaying when you start collecting Social Security can also be a game changer. The longer you wait in your 60s, the higher your benefit will be. You’ll receive 100 percent of your benefit if you wait until you reach your full retirement age, which is 67 for folks born in 1960 or later. Beyond that, your monthly benefit will grow by 8 percent every year up to age 70. 

Saving for retirement is a big financial goal, and expert advice can be a game changer. Your Northwestern Mutual financial advisor can help you create a long-term plan that centers your vision for the future—no matter where you are on your savings journey. Your advisor can ask deep questions to get to know you and your goals and then customize a plan for you. The plan helps to grow your money while protecting you and your family from common risks that could get in your way. A solid plan can give you confidence that you’re on track for the retirement you’re dreaming about. 

All investments carry some level of risk, including loss of principal invested.  No investment strategy can assure a profit and does not protect against loss in declining markets.  The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.  This publication is not intended as legal or tax advice. Financial Representatives do not render tax advice. Consult with a tax professional for tax advice that is specific to your situation.   

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.