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How to Start Saving For Retirement

It’s never too early or too late to start saving for retirement. Check out how much savings you should have for your age and learn how to save for retirement.

Close up of person looking at a smart phone with some charts and the words Retirement Planning

The average retirement savings balance for Americans is $141,542 according to a recent report. However, the median 401(k) balance is only $35,345. And nearly half of adults age 55-66 have no personal retirement savings. While some retirees can count on a defined-benefit pension plan, that amounts to less than one-third of the workforce. Your personal retirement savings goal will depend on a variety of factors, including your expected Social Security income, but almost everyone will need more than just that to live comfortably in retirement. Luckily, it’s never too early (or too late) to start saving for retirement. Check out how much savings you should have for your age and keep reading to learn how to save for retirement.

Save at Work With a 401(k) or 403(b)

If your employer offers a 401(k) or 403(b), you should start contributing if you aren’t already. These retirement accounts are similar; the main difference is that 401(k)s are offered by for-profit companies and 403(b)s are an option with tax-exempt and non-profit organizations. Make sure you’re contributing at least enough to get the full employer match if they offer one. On average, employers will match contributions of up to 3% to 6% of your salary. Pay attention to requirements for “full vesting,” which means you get to keep your employer’s contributions after you leave the job. Some companies have their employees fully vested from day one, whereas others require a certain number of years on the job.

Contributions to your employer-sponsored 401(k) or 403 (b) retirement accounts are not taxed, meaning they come from your pre-tax income, automatically deducted from your paycheck. This also has the benefit of lowering your overall taxable income for the year. However, the withdrawals you make in retirement will be subject to income tax.  If you contribute to a Roth 401(k) or Roth 403(b) your contributions are made on an after-tax basis and then can be withdrawn on a tax-free basis staring at age 59.5.

Once you’ve set your contribution to receive your full employer match, consider setting up an automatic annual 1% increase. Chances are you won’t even notice the difference in your paycheck. Another approach is to increase your contribution every time you get a cost-of-living raise or promotion.

As of 2023, the annual contribution limit for 401(k) and 403(b) accounts is $22,500. If you’re age 50+, you can make an additional “catch-up contribution” of up to $7,500 (for a total limit of $30,000). Annual contribution limits generally increase a little each year to keep up with inflation.

While it won’t be possible for everyone to max out their annual contribution, you can at least set a goal to incrementally increase your contribution each year. Every dollar you can save and invest now will have time to grow before you reach retirement age. 

You can start to make penalty-free withdrawals from your 401(k) or 403(b) at age 59.5. 

The new Required Minimum Distribution rules have changed again when the SECURE ACT 2.0, was signed into law on December 29, 2022. For participants born from 1951-1959, the RMD starts in the year that they reach age 73.  A participant born in 1959 and after, their RMD starts in the year that they reach age 75.

Small Business Owners Can Save with a SEP Account

The Simplified Employee Pension (SEP) is an alternative to a 401(k) account for small business owners and sole proprietors. SEP-IRAs are easy to set up and operate, and administrative costs are low. Only the employer can make contributions and they must contribute equally to all eligible employees’ SEP-IRA. Employers can also contribute to their own SEP-IRA. The annual contribution limit is 25% of an employee’s compensation or $66,000 (whichever is less).

When it comes to tax benefits, the business can deduct contributions made up to the limit. So, opening a SEP-IRA can help small business owners and sole proprietors save on taxes. It’s also a great benefit to attract and retain talent. 

You can start to make penalty-free withdrawals from a SEP IRA at age 59.5.

Individual Retirement Accounts (IRAs)

An IRA is a type of retirement account that anyone can open, regardless of whether or not you also have an employer-sponsored retirement savings account. Unlike a regular savings account, IRAs offer similar tax advantages as 401(k)s. They also have annual contribution limits ($6,500 as of 2023) and penalties for early withdrawals.

When you leave your job, you take your 401(k) balance with you, but it needs to be “rolled over” into a new account. An IRA is a great option for this. While you can open your own IRA at any age (18+), your 30s can be a particularly good time to start one.

Roth IRA vs. Traditional IRA

There are two types of IRAs to choose from.
  • Traditional IRAs offer tax-deductible contributions (up to certain income limits) and you can contribute regardless of your income.
  • Roth IRAs offer tax-free withdrawals at retirement. Contributions are made from post-tax dollars and begin to phase out at certain income limits.
You can start to make penalty-free withdrawals from your Traditional or Roth IRA at age 59.5. With a Traditional IRA, you must start to make withdrawals at age 72. With a Roth IRA, no withdrawals are required until after the death of the owner.

Generally, the earlier you open a Roth IRA the better, because of the income limits. Parents can open a Roth IRA for high school students as soon as they start working, but contributions cannot exceed their earnings. If you are in a high-earning profession (or expect to be), you will want to contribute while you are still eligible. As of 2023, contributions to a Roth IRA are phased out and eliminated for single income earners making $129,000-$144,000 a year. For married couples filing jointly, the range is $218,000-$228,000.

How To Save For Retirement  1. Contribute to your company's 401(k) or 403(b).  If you're self-employed setup and contribute to a SEP account.  2. Open an Individual Retirement Account (IRA).  Traditional IRA - Make tax-deductible contributions. Roth IRA -Post-tax contributions, tax-free withdrawals.  3. Get a Health Savings Accounts.  Eligible if you have a high-deductible health insurance plan.  Make contributions form pre-tax dollars. Invest contributions and earn tax-free gains. Use for medical expenses now or save for medical costs when you're retired. 4. Consider An Annuity  Investment tool backed by an insurance company. Pay a premium to the insurance company and receive monthly payments for the rest of your life or a lump sum payment.  5. Invest in The Stock Market - Options for various risk levels.  Mutual funds - Different types of securities from different companies. Individual stocks - Invest in an individual company. Bonds - Fixed income, less volatile. 6. Get A Traditional Savings Account.  No risk traditional savings accounts including Money Market and CD 7. Have an Emergency Savings Account.  No risk, liquid account with enough to cover 3-6 months of expenses.   Note: Securities and insurance products are offered through Cetera Investment Services LLC (doing insurance business in CA as CFG STC Insurance Agency LLC), member FINRA/SIPC. Advisory services are offered through Cetera Investment Advisers LLC. Neither firm is affiliated with the financial institution where investment services are offered. Investments are: • Not FDIC/NCUSIF insured • May lose value • Not financial institution guaranteed • Not a deposit • Not insured by any federal government agency

Health Savings Account (HSA)

If you are in a high-deductible health insurance plan, you are eligible to open a Health Savings Account. Many employers offer HSAs as a benefit, making contributions to employee’s accounts on a monthly or annual basis. In addition to helping you save for out-of-pocket medical expenses, HSAs can also be used as a retirement account. They offer a triple tax advantage:
  • Contributions are made from pre-tax income
  • You can invest a percentage of your balance and it will grow tax-free
  • HSA distributions for qualified healthcare expenses are not taxed

At age 65, you can take HSA distributions for any reason without penalty. However, you will pay income tax on any expenditures that aren’t qualified healthcare expenses (those remain untaxed). So, you can use your HSA account to save for retirement expenses generally, as well as the out-of-pocket healthcare costs you may face. HSAs can also be used to pay Medicare premiums.

As of 2023, annual contribution limits for HSAs are:
  • $3,850 for individual coverage
  • $7,750 for family coverage

HSA funds never expire. If you get your HSA through your employer, you can hold onto it after you leave. If your employer doesn’t offer one, you can open your own HSA through FNBT.

Check out our blog for more reasons to open an HSA. 


An annuity is another option for generating retirement income. They are issued and backed by insurance companies, but annuities are actually an investment tool. Unlike with your 401(k) or IRA, however, you don’t have to worry about running out of money before you die. 

You can choose between immediate annuities or deferred. With both types of annuities, you pay a premium to the insurance company and then receive a lump sum payment or regular monthly payments for the rest of your life. The insurance company invests your premiums, with all the risk of a down market falling on them, not on you. Learn more about annuities and why they’re a good option for retirement income.

Investment Accounts

Of course, you don’t need an official retirement account to invest your money in the stock market. And, if you are aiming to retire earlier than the official retirement age of 59.5, you’ll need to build a non-retirement investment account to live off of. 

Choose from different types of investment products to suit your risk tolerance:
  • Mutual Funds: Choose between different risk levels. Mutual funds contain different types of securities, from different companies, so your risk is spread out (as opposed to purchasing individual stocks).
  • Individual Stocks: Investing in individual companies by purchasing stock can be risky, but it can also pay off in a big way (see early Apple or Tesla investors, for example). It’s best to start when you’re young, so you have time to grow your stock portfolio before you retire.  If you are investing in riskier stocks, you will want to move to a less risky portfolio as you get closer to retirement.
  • Bonds: These fixed-income securities are less volatile than stocks.
If you want to invest in the stock market, but you aren’t sure where to start, an investment advisor can help you determine your risk tolerance, set goals for retirement income, and create a portfolio that is right for you. 

No-Risk Traditional Savings Retirement Options

If you’re just starting to save for the future, it’s okay to start with a traditional savings account. You’ll earn interest on your deposits without the risk of stock market ups and downs. As your balance grows, you can consider moving it into an IRA, Money Market account, or CD.  

Each type of savings account offers its own benefits:
  •  A Money Market account can help you earn more interest and prepare you for long-term savings. 
  • Earn even more interest with a CD This helps you get used to not touching your money for a specified period of time
As you get more comfortable with long-term savings accounts, you’ll be more prepared to contribute to an IRA or another long-term retirement savings account.

Emergency Savings

Even if you have an IRA, 401(k), or brokerage account to save for retirement, it’s still a good idea to keep a certain amount of money (3-6 months of living expenses or more) in a liquid savings account that you can touch in an emergency. Whether it’s before or during retirement, emergency savings can help you deal with medical bills, home or auto repairs, a temporary job loss, and other unexpected expenses.

Our Investment Advisors are here to help! 

It’s never too early to start planning for retirement and always better late than never. The fresh start that a new year brings is a good time to commit to start saving for retirement or to review your current plan and see if anything needs to be adjusted. Contact our investment advisors in Southern Wisconsin and Northern Illinois with questions or check out our retirement calculators for IRAs and other types of savings accounts. Whether you invest in a 401(k), IRA, or brokerage account for your retirement savings, diversification is key.

Check out our eleven tips for saving more money this year. 

Securities and insurance products are offered through Cetera Investment Services LLC (doing insurance business in CA as CFG STC Insurance Agency LLC), member FINRA/SIPC. Advisory services are offered through Cetera Investment Advisers LLC. Neither firm is affiliated with the financial institution where investment services are offered. Investments are:
• Not FDIC/NCUSIF insured
• May lose value
• Not financial institution guaranteed
• Not a deposit
• Not insured by any federal government agency