Retirement savings guide: Fundamentals for employees

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Key Takeaways

  • Generally, the earlier you start saving for your retirement, the more likely you’ll have flexibility in the future

  • Consider three factors when getting started: age, retirement lifestyle expectations, and current retirement savings

  • Let's review some ways you can save for retirement, how to build an investment portfolio, and expenses to track

There’s no question that the landscape, and definition, of retirement, are changing. Today, people consider retirement in terms of financial independence rather than your status in the workforce. According to a recent Human Interest survey, most Americans believe that retirement is now a slow transition away from full-time work rather than a complete stop from working entirely. Further data also shows that Americans today define retirement as the period of time to have the freedom to do whatever you want.

But regardless of how you plan to spend your retirement, it’s generally recommended that the earlier you start saving for your retirement (whether through a traditional 401(k), IRA, brokerage account, or a combination of them) the more likely you’ll have the flexibility to spend your retirement years however you choose. 

Below, you’ll learn how to plan for your retirement, how to work toward reaching your retirement goals, the basics of investing in your retirement account, and other factors you may need to consider as you get closer to retirement.

How much do I need to save for retirement?

Your age, current savings for retirement, and target retirement date are all variables that can affect your retirement savings strategy and how much you need to save for retirement. 

We believe that both younger and older individuals need to prioritize saving for retirement. It is especially important for individuals that are closer to retirement to take advantage of available retirement savings options. If you have access to a 401(k) account, a good option may be to maximize the amount you can contribute each year. According to Investopedia, the historical return rate of a 401(k) is between 3% to 8%, which means that saving consistently over just one or two decades can potentially generate a sizeable amount of retirement savings. Individuals that are 50 years or older can also benefit from catch-up contributions, which allow individuals with a qualified 401(k) retirement plan the ability to contribute an additional $7,500 into their 401(k) account, in 2024. 

See how much you can save with our retirement calculator

For younger individuals, there is more flexibility on how aggressively they may want to save for retirement. Yet some younger people may not be taking enough risk when saving for retirement. According to a report by the U.S. World News Report, over 40% of people between 18 and 31 have their money in a savings account rather than choosing to invest their money, which is the largest percentage compared to previous generations. While a 401(k) is generally considered a part of a balanced approach to saving for retirement, younger people should consider the merits of building a balanced investment portfolio to help hedge against stock market volatility. 

How much money you need to save for retirement depends on when you want to retire and how you envision your retirement lifestyle. The average American typically retires between 60 to 70 years old and spends between 20 to 30 years in retirement. For reference, the average life expectancy for Americans is 77 years). For some individuals who plan to retire early, it may make more sense to save as much pre-tax income as possible. For those who do not anticipate high retirement expenses (such as healthcare, travel, and living care) or do not foresee retirement until they’re much older, they may not need to save as much. 

Now that we’ve considered some of the factors involved in retirement savings, here’s how to get a general projection of how much to save for retirement.

Two common retirement saving calculation formulas are the Rule of 300 and the 4% rule:

  • The Rule of 300 multiplies your current income by 300 to estimate how much you’ll need for the duration of your retirement. For example, if you currently spend $4,000 a month, you’ll multiply that amount by 300, which means you’ll likely need $1,200,000 when you retire. 

  • The 4% rule calculates how much you’ll roughly spend on monthly expenses during your first year of retirement. To use the 4% rule, you’ll want to multiply the current balance on your investment portfolio and divide it by 12. 

After determining how much to save for retirement (factoring in inflation), you can start calculating how much you need to put away in your 401(k) each year to help you get to that amount. Ronnie Cox, Investment Director at Human Interest Advisors, recommends contributing 10% to 15% to your account. "Depending on your situation, however," he says, "that may mean starting at a lower rate like 7%, and gradually increasing each year through automatic increases."

What are the different types of accounts for retirement?

Part of financial planning for retirement is to save regularly, and one of the best ways to do this is to open a retirement account. However, you have a few options when deciding what “type” of retirement account you want to use. Some of the most common retirement account types are: 

  • 401(k): The 401(k) is an employer-sponsored retirement plan that allows employees to contribute a percentage of their salaries into their retirement account. Contributions to a 401(k) are made with pre-tax money, which can reduce your taxable income for the year. 

  • Roth 401(k): The Roth 401(k) is similar to a 401(k), except contributions are made with after-tax money. This allows individuals to make withdrawals from their Roth account tax-free during retirement if certain requirements are met. 

  • Traditional/Roth IRA: If you do not have access to a 401(k) plan through your employer, you may want to consider opening an IRA, otherwise known as an individual retirement account. A traditional IRA is not an employer-sponsored plan but offers some of the same tax advantages of a 401(k) plan.

Choosing between these options will depend on your retirement goals and personal circumstances. A 401(k) may be the best option if you expect to be in a lower tax bracket during retirement, while a Roth account might be better if you expect to be in a much higher tax bracket. 

How to get the most out of your retirement account

If you have access to a 401(k), we recommend taking advantage of all of the benefits of your retirement account. Here are some tips to help get the most out of your 401(k) account: 

  • Maximize your employer match: If your employer offers an employer match, it means that they may also contribute to your 401(k) plan based on how much you contribute. 

  • Consider increasing contributions annually: Your earning power will likely increase as you get older. With each salary increase, you may want to consider increasing your contribution rate, or the percentage of your income you contribute to your 401(k). The maximum contribution limit amount is $23,000 (for 2024).

  • Consider catch-up contributions: If you’re 50 years or older, you have the option to make a catch-up contribution, the ability to contribute more money to your retirement account over the maximum limit set by law. For 2024, the catch up amount for eligible 401(k) participants is $7,500. 

  • Wait for vesting: Your employer may have a vesting schedule that details how long you must stay at your place of employment to access the full employer contribution. Continuing employment until fully vested will increase your retirement benefits.

  • Take advantage of tax credits: A 401(k) plan can also offer a few tax advantages for participants. Workers who make below a certain income may be eligible for the Saver’s Credit, a special tax credit applied to annual income tax returns for eligible participants who make first-time contributions to their retirement account. 

We also want to note that a 401(k) can also lower your taxable income, which can potentially lower the amount of income taxes you pay. This may mean that the more you contribute to your 401(k), the less you’ll currently have to pay in income taxes, which can work to the advantage of those in a higher income tax bracket. 

Investing for retirement with a 401(k)

Once you’ve set up a retirement account, the next step to planning for retirement is to decide how you want to invest your money. Your choices for how to invest your money into retirement can depend on how actively you want to manage your investment portfolio, as well as your risk tolerance. Risk tolerance is your ability to withstand the market's uncertainties in exchange for the potential to receive greater returns. But whether you have a high or low-risk tolerance, it’s generally believed that proper diversification, or spreading your investments among different asset classes, can be key to helping you create a strong investment portfolio. 

After you have a general sense of how much risk you can tolerate, you’ll then want to think about building your investment portfolio. According to advice from Peter Lynch, manager of the Magellan Fund at Fidelity, it is always better to have a thorough understanding of each potential investment. Lynch advises investors to read financial statements like balance sheets and income statements, listen to earning calls, and examine annual filings with the SEC for each investment.  

Remember that after you’ve built an investment portfolio, over time, the performance of your portfolio might knock your asset allocation out of balance from where you want it to be. Rebalancing your portfolio, or updating your investments to return your portfolio to its target mix, can help prevent certain assets from being overly concentrated and reduce risk associated with asset allocation drift. 

If you’re less inclined to manually balance your portfolio, you may want to consider automatic rebalancing. Automatic rebalancing allows an investment company or financial advisor to rebalance your portfolio on your behalf. The potential benefits of automatic rebalancing can include: 

  • Risk reduction

  • Less manual work

  • Less trading costs

What else to consider when planning retirement?

In addition to regularly contributing to your retirement account and managing your investments, there are a few other considerations when planning for retirement. 

1. Social security 

Social security is a federal program that provides monthly retirement benefits to qualified individuals. To qualify for social security benefits, you must be at least 62 years old and have contributed to the system for at least 10 years. According to the social security administration, you can also choose to delay your social security benefits. Social Security retirement benefits are increased by a certain percentage each month you delay your benefits after 62 years of age. The benefit increases stop when you are 70 years old. 

It’s important to note that social security alone may not be enough to cover your retirement cost of living expenses. As of May 2023, the average monthly benefit for retired workers is $1,836.06 or around $22,032.72 annually, which may be significantly less than what most people need for retirement. It is, however, a good way to supplement income for your retirement. 

To estimate how much you’ll receive from social security, your average indexed monthly earnings during your 35 highest earning years are calculated. 

2. Healthcare 

A 2022 report by HealthView Services Financial shows that lifetime retirement healthcare costs are expected to increase exponentially, should inflation continue to increase over the next several years. A healthy 55 year-old couple may be subject to up to $267,000 in additional retirement healthcare costs. That’s why it’s critical to factor in healthcare expenses before retirement, considering that Medicare premiums may increase over time.

Get ahead of retirement planning with Human Interest

Planning for retirement is critical, especially as the landscape of retirement changes and more Americans expect more flexibility during this phase of life. Whether you are new to building a nest egg for retirement or are closer to retirement age, it’s not too late to open a retirement savings account and maximize your contributions (and employer match) to maximize your retirement savings. At Human Interest, we provide affordable 401(k) plans for small to medium-sized businesses and offer free information on preparing for retirement. Sign up for our newsletter below to learn more.

Glossary of terms

Asset Allocation: The distribution of assets across various asset classes, such as stocks and bonds, often tailored to meet an investor’s objectives while considering risk tolerance and investment horizon.

Rebalancing: The process of moving money from one type of investment to another to maintain a desired asset allocation.

Volatility: A statistical measure of the dispersion, or variability, of returns for a given security or portfolio. Volatility is often measured using standard deviation.

Past performance does not guarantee future results

Human Interest Inc. is an affordable, full-service 401(k) and 403(b) provider that seeks to make it easy for small and medium-sized businesses to assist their employees with investing for retirement. For more information, please visit Investment Advisory services are provided through Human Interest Advisors LLC, a Registered Investment Adviser and subsidiary of Human Interest Inc. For more information on our investment advisory services, please visit

This content has been prepared for informational purposes only, and should not be construed as tax, legal, or individualized investment advice. Human Interest Advisors LLC does not provide tax or legal advice. Consult an appropriate professional regarding your situation.The views expressed are subject to change. In the event third-party data and/or statistics are used, they have been obtained from sources believed to be reliable; however, we cannot guarantee their accuracy or completeness. Investing involves risk, including risk of loss. 

The investment approaches discussed in this article do not assure a positive return or a positive investment experience. There are numerous ways of approaching investing, and not all are appropriate for every individual. Diversification does not ensure a profit or protect against loss. 

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.

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