Saving and planning for retirement in your 20s, 30s, 40s, 50s and beyond

The earlier you can start putting money away for post-work life, the easier it’ll likely be to pay for the retirement lifestyle that you want—when you want it. That said, it's never too late to put a plan in place.

No matter your age, it's helpful to spend some time thinking about what your ideal retirement will look like. How old will you be when you call it quits? Will you work part-time? Maintain multiple homes? Travel the world?

While the answers to these questions will likely change over time, especially if you're still in the early stages of your career, considering them can provide motivation to save. Once you have goals in mind, the E*TRADE from Morgan Stanley Retirement Planning Calculator (login required) can help you create a personalized plan, track progress, and provide helpful tips to boost your outlook.¹

Here are some tips on saving and investing for retirement, no matter what stage of life you're in right now.

You likely have a lot of competing priorities during these years, including buying a home, starting a family, or simply trying to balance your budget and pay off student loans. While it's important to focus on these short-term milestones, establishing a realistic retirement savings plan can help in the long term.

The beauty of saving for retirement when you're young is that you've got decades for your money to potentially grow. This is prime time to put the power of compounding—the process of earning interest on your interest—to work. When you first open a retirement account, your initial deposit can grow by the percentage you earned in returns and/or interest annually; the next year, however, you have the potential to earn on the original amount you put in as well as the returns/interest you earned last year. It may not seem like much at first, but over time it can add up.

Spending less than you're earning, but not sure what to do with your excess cash? Consider this hierarchy:

For people with dependents, especially young families, life insurance can be a critical part of a well-rounded financial plan. Term life insurance can provide your loved ones with a cash benefit² (typically income-tax-free) in a worst-case scenario. They can use it to pay a mortgage, cover college tuition, keep a business running, or simply continue to meet everyday expenses.

You're likely earning more money by now, but you may also be facing more financial responsibilities like children’s college tuition or caring for aging parents. Not to mention: Retirement is approaching as well, so you'll need to consider balancing your investing strategy to address your current needs while keeping an eye on the future.

Diversifying investments across stocks, bonds, and cash can help you manage risk while maintaining growth potential. Being too conservative (e.g., staying in all cash) can be just as risky as being too aggressive, especially when factoring in inflation. Use the Allocation & Risk tool to understand the risk in your portfolio. It may also be important to rebalance your portfolio periodically as the markets or your goals change.

By the time you've reached this stage in your career, you may have built up multiple 401(k) plan accounts through former employers. Keeping your money in one place can make monitoring and allocating your assets much simpler—but consolidation is not right for everyone, so carefully consider your options. The E*TRADE from Morgan Stanley Rollover Tool can help you understand your options as you consider what to do.

If you're age 50 or older, special “catch-up” contributions are a great way to give your retirement savings an extra boost. In 2023, you may be able to contribute up to an extra $7,500 to a 401(k) plan, and up to an extra $1,000 to a Traditional or Roth IRA. Catch-up contributions to SIMPLE IRAs may be permitted in amounts up to $3,500 in 2023. Similar “catch-up” contributions are available for HSAs if you’re age 55 or older, allowing you to contribute up to an extra $1,000 to an HSA.

Once you've made it to retirement age, it's typically time to start shifting your focus from building up your nest egg to enjoying it. Of course, you'll want to make sure that the income stream you create not only meets your lifestyle needs now but can also cover future costs like healthcare.

Guaranteed income, such as from Social Security, pension benefits, or annuities can help pay for your essentials.

If you have a 401(k) plan, IRA, or other qualified retirement plan, the IRS requires that you take a required minimum distribution (RMD) from such accounts when you reach a certain age. The age at which an individual must start taking RMDs (“RMD Age”) depends on the individual’s date of birth (for example, if born after 1950, but before 1960, the RMD Age is 73).³

Note, however, for a 401(k) plan or other qualified retirement plan (excluding IRAs), if you are still employed by the plan sponsor and are not a 5% owner, you may not need to take a RMD.

If you are over 59½ but have not yet reached RMD Age, you may want to “smooth out” the distributions. This means taking distributions from certain employer retirement plans and IRAs earlier in retirement (prior to reaching RMD Age) to lower account balances, which may help to prevent RMDs resulting in higher income levels (that could push you into a higher tax bracket) in any given year.⁴

It's not uncommon for retirement to stretch three or four decades. That means you need to make sure your plan is flexible and can adapt with you over time to help you meet long-term needs and legacy goals.