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This Timeline Shows You Exactly How to Save for Retirement

Saving for retirement may be the last thing on most people's minds. But starting early and hitting these milestones will help you figure out how to save for retirement—while you build other smart money habits.

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In your 20s: Get started

Oh, the temptations of life with a full-time paycheck for the first time ever. So many cool things to do! So much cool stuff to buy! Not so fast, money experts say. Your financial priorities right now should be to set up a budget and establish other good money management habits, build a solid credit history, and begin to save. “How much should I save for retirement?” may seem like a weird question in your twenties, but the power of compound interest is on your side, so every dollar saved will grow and grow. Pay yourself first: Use direct deposit to save 10 percent right off the top of every paycheck.

If your employer has a 401(k) retirement plan, sign up, especially if the company offers a match. You’re essentially turning down part of your paycheck if you don’t take advantage of this. This retirement calculator on Bankrate.com shows that putting 5 percent of your pretax salary into a 401(k) with a 50 percent match, starting at age 24, will turn into $985,348 by retirement time. That’s $2,000 a year on a $40,000 income, about $5.50 a day. Skip your daily caramel macchiato and retire a millionaire!

Other financial priorities for new grads: Build an emergency fund of at least three months’ salary, so unexpected expenses don’t put you on the treadmill of credit-card debt. Then turn your savings toward a short-term goal, like a wedding or down payment on a home. If you get a windfall—a bonus or tax refund—use this rule of thirds: a third into savings, a third to pay down your student loan debt, and the final third to spend on something great. While you’re at it, learn about the FIRE movement to plan your retirement early.

Milestones: Start saving 10 percent of each paycheck and aim to have the equivalent of your annual salary saved in a retirement account by age 30.

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In your 30s: Juggling life’s milestones

As millennials reach their 30s, expensive life events like marriage, kids, and home ownership put a strain on the budget. The average American wedding in 2016 cost more than $35,000, according to TheKnot.com—and that’s not including the honeymoon.

These big-ticket milestones mean that even as your earning potential grows, you may find it harder to figure out how to save for retirement or avoid running up credit-card debt. (Take a look at 13 things your credit-card company knows about you.) Focus on paying off your student loans by age 30 to free those dollars for other things. As your salary increases, live below your means, and stash your raises away. (Memorize these 11 money rules by age 40 to keep expenses aligned with income.)

Now is a good time to open a Roth IRA, especially if your employer doesn’t offer a retirement plan. Where traditional IRA accounts grow tax-deferred, a Roth IRA uses after-tax dollars, but allows the saver to withdraw without penalty, up to the amount they’ve contributed.

Your home is the largest investment you’ll make, and a mortgage is a 30-year obligation. Children are another expensive investment; the U.S. Department of Agriculture estimates that a child born in 2015 to a middle-income family will cost $233,610 to raise, about $13,000 a year, not counting college expenses. According to SavingForCollege.com’s college cost calculator, that 2015 baby will cost $199,000 to educate. Opening a 529 college savings plan when they’re babies puts that compounding interest rule to work for them in the next 18 years.

Milestones: By 35, have twice your salary saved for retirement, and make the final payments on those student loans. Buy term life insurance and start college savings accounts for your kids.

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In your 40s: Stash your cash in retirement savings

Most people’s peak earning years begin in their 40s, so now is the time to focus on saving for retirement and other long-term goals. Even if you haven’t saved a nickel for retirement before your 40th birthday, according to radio host Dave Ramsey, putting aside $650 a month can allow you to retire at 67 with a million-dollar nest egg. That’s about 15 percent of a $50,000 salary.

Where do people find an extra 15 percent? They boost their earnings through smart career moves or a side job, and keep a tight rein on expenses. Drive your paid-off car a few extra years, or make your teenage daughter use her babysitting money to buy an iPhone.

In your 40s you should make the maximum contribution to all your retirement accounts, including your 401(k) or other employer-sponsored account ($18,000 per year), and traditional or Roth IRAs ($5,500 per year). A taxable investment account is a third asset type that you can fund at whatever level you like and tap in the early years of your retirement, leaving the tax-deferred accounts to grow until age 70.

Milestones: Bump up your retirement contributions to 10-15 percent. Open a taxable account. Maximize your earning power as much as possible, while keeping control of expenses.

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In your 50s: take stock and catch up

In your 50s, life slows down. The kids go away to college and start lives and careers of their own. The era comes to a close when every dollar seemed to sprout wings and fly away. Remember that question that seemed so silly in your 20s? “How much should I save for retirement?” is worth revisiting now.

It’s time to take a different approach to how to save for retirement. Calculators like this one from Kiplinger help you figure out how much money you’ll need to live—80 percent of pre-retirement income is a rule of thumb—and whether your savings will enable you to meet this goal, giving increasing life expectancy. If you’re short, now’s the time to catch up.

Federal tax laws allow “catch-up contributions” to retirement savings, starting at age 50. Employer-sponsored 401(k) and 403(b) plans allow 50-somethings to contribute $24,000 per year, while the limit for traditional and Roth IRAs rises to $6,500. Meanwhile, your asset allocation should change from the high-growth investment portfolio of your younger years to less risky choices like index funds and annuities, according to David Rando, founder of Senior Capital Solutions.

Downsizing is another smart strategy for those in late middle age. That may mean selling the family home, using your accumulated equity to pay cash for a smaller, less-expensive place. On top of mortgage savings, you’ll save on maintenance, insurance, taxes, and utility costs. You might even opt to move to a less expensive area, like a town on this list of best places to retire.

Milestones: By 55, you should have four to five times your annual salary in savings. Make catch-up contributions to your IRA and employer-sponsored accounts. Adjust your living situation to your empty-nester needs and retirement income levels.

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In your 60s: prepare for transitions

These are the years when all your saving and smart strategizing pays off. A large-enough retirement nest egg allows you, in the words of the old burger-joint ad, to have it your way. Retire when you want, or keep working. Make home improvements, devote time and money to causes you value, or travel the world.

If your financial picture is not so rosy as you enter your seventh decade, or health expenses are driving up your cost of living, you still have options.

Keep working as long as you can, both for quality of life and financial reasons. While you can begin collecting Social Security benefits at age 62, and withdrawing from retirement accounts at age 59 ½, each year you delay collecting Social Security increases your benefit by 8 percent. Meanwhile, your investment nest egg continues to grow.

The old strategy no longer applies of moving your portfolio as you age into cash, money-market accounts, and bonds. As people live longer, retirement savings must last longer, so even into your retirement years, a mix of growth and income equities will keep your assets increasing, so you don’t outlive your money, says Caroline Thomas of the investment firm Brown Brothers Harriman.

Milestones: Delay the beginning of Social Security benefits, but sign up for Medicare health benefits before you turn 65. Begin withdrawing from retirement accounts by age 70.

Lisa Greim
Based in Denver, Lisa Greim specializes in clear and readable copy about business and workplace, consumer finance, home and garden, and travel. As a content marketer, she has crafted brand stories for payment processor CSG Systems, Colorado School of Mines, the Denver Susan G. Komen Race for the Cure, JE Dunn Construction, and Emerald Fields, a Colorado  cannabis dispensary chain.

Her B2B experience includes covering workplace strategies for B the Change, technology for the Rocky Mountain News, mutual funds for Institutional Investor Newsletters, commercial real estate for the San Francisco Business Times, and retail for CBS Marketwatch and Natural Foods Merchandiser. On the B2C side, she has written for Parenting, Brides, PCWorld, ShopSmart (Consumers Union), The Denver Post, and many more.