How to Plan for Retirement Based on Your Salary and Age: Our Advice
Retirement planning is not simply about accumulating the biggest possible account balance. The real objective is to eventually turn your savings into sustainable, predictable, and consistent retirement income that can support your lifestyle for as long as you live.
That means what makes sense at age 22 may not make sense at 42 or 62.
When you are young, time and compound growth are your biggest advantages. In your 30s and 40s, taxes, family expenses, and income typically become more important. Once you reach your 50s and early 60s, the focus should gradually move away from simply asking, “How much can I accumulate?” toward asking, “How much reliable income can these assets actually produce?”
This is our advice on how to approach retirement based on your age and salary.
How Much of Your Salary Should You Save for Retirement?
There is no percentage that works for everybody. Someone earning $45,000 with three children has a completely different financial situation from someone earning $200,000 with no debt.
However, these are reasonable targets to work toward:
| Age | Suggested Retirement Savings Target | Primary Goal |
|---|---|---|
| 16–24 | 5%–15% of income | Start early and establish the habit |
| 25–34 | Around 15%–20% | Aggressive accumulation |
| 35–44 | Around 15%–20% | Balance taxes, family costs, and retirement |
| 45–54 | Around 20%–25% if behind | Catch up and begin income planning |
| 55–64 | Maximize available savings when practical | Transition from accumulation to income |
| 65+ | No fixed percentage | Manage withdrawals, taxes, Medicare, and income |
The percentages include your retirement savings overall. Your exact allocation among a 401(k), Roth IRA, HSA, annuities, and taxable investments will depend on your tax situation and available plans.
What 15% to 20% of Your Salary Actually Looks Like
| Annual Salary | 15% Savings | 20% Savings |
|---|---|---|
| $40,000 | $6,000 | $8,000 |
| $60,000 | $9,000 | $12,000 |
| $80,000 | $12,000 | $16,000 |
| $100,000 | $15,000 | $20,000 |
| $150,000 | $22,500 | $30,000 |
| $200,000 | $30,000 | $40,000 |
You cannot necessarily put all of that into one retirement plan because IRS contribution limits apply. In 2026, the employee contribution limit for most 401(k), 403(b), governmental 457(b) plans, and the TSP is $24,500. The standard catch-up contribution for people age 50 or older is another $8,000, while workers ages 60 through 63 can generally make a larger catch-up contribution. The IRA contribution limit is $7,500, with an additional catch-up contribution available beginning at age 50.
Once you have reached the limits available through one account, additional savings may have to go into another qualified account, an HSA if eligible, or a taxable investment account.
Ages 16 to 24: Start Small, but Start Immediately
This is probably the easiest retirement advice to give and the hardest for a young person to care about: start early.
At this age, even relatively small contributions will compound significantly over time.
If you have earned income, a Roth IRA can be an excellent starting point. You pay taxes today rather than receiving an upfront deduction, and qualified Roth IRA withdrawals can later be tax-free.
That can be particularly attractive when you are young and your income—and potentially your tax bracket—is relatively low.
If you make $30,000 or $40,000 today, paying taxes now may be preferable to building a large amount of pretax retirement money that will eventually generate taxable distributions.
Our preference for many younger workers is simple: fund the Roth while your current tax situation makes it attractive.
You may not have access to a 401(k) yet. Once you start working for an employer that offers one, contribute enough to receive the entire employer match before worrying about more complicated strategies.
Pros
- Your money has decades to potentially compound.
- Roth accounts can create a source of tax-free qualified retirement income.
- Starting young means you may not need to contribute as much later to reach the same goal.
- You begin developing good saving habits before lifestyle expenses increase.
Cons
- Cash flow is often limited at this age.
- Student loans, housing, vehicles, and other expenses may make large contributions difficult.
- You should not ignore high-interest debt or emergency savings simply to maximize retirement contributions.
Who Could Benefit?
Young workers with earned income who can contribute without creating high-interest debt could benefit significantly from starting early, particularly if they are currently in a relatively low tax bracket.
Who Might Not Benefit?
Someone carrying significant credit-card debt or without basic emergency savings may need to stabilize those parts of their finances before aggressively increasing retirement contributions.
Ages 25 to 34: Get Aggressive About Accumulation
This is where retirement savings should start becoming serious.
If you can save approximately 15% of your salary, do it. If your income allows 20%, even better.
You still have several decades before retirement, so your workplace investment allocation can generally tolerate more volatility than someone who is five years from retirement. That does not mean blindly choosing the riskiest investments available. It means recognizing that short-term market declines are less threatening when retirement is decades away.
This is also an important age for choosing between traditional and Roth retirement contributions.
A Roth 401(k), Roth 403(b), or Roth governmental 457(b), when offered, allows you to pay income tax on contributions today while qualified withdrawals can eventually be tax-free.
For someone supporting themselves primarily and still in a relatively modest tax bracket, we frequently favor substantial Roth contributions.
If you’re earning more money, however, don’t automatically assume Roth is always better. Compare the tax rate you’re paying today with the tax rate you reasonably expect to face later.
What Should You Do With an Old 401(k)?
If you change jobs, roll over your 401(k) to avoid early withdrawal penalties and do not lose track of your old retirement accounts.
Depending on the plan, you may have several options:
- Leave the money in your previous employer’s plan if the plan allows it.
- Roll the money into your new employer’s plan if the new plan accepts rollovers.
- Complete a direct rollover into an IRA and manage the account separately.
- Consider a Fixed Index Annuity (FIA) later if your goal changes from investment accumulation to long-term growth with downside protection or creating guaranteed retirement income.
An IRA may provide greater investment flexibility, but an employer plan may offer benefits an IRA does not. Compare fees, investment choices, withdrawal rules, creditor protection, and other features before deciding.
Pros
- You still have a long time horizon for growth.
- You may have access to employer matching contributions.
- You can potentially build both Roth and traditional retirement assets.
- Increasing your savings rate now can reduce how much catching up you need to do later.
Cons
- A more aggressive investment allocation can experience significant short-term losses.
- Choosing between Roth and traditional contributions becomes more complicated as your income increases.
- Changing employers can leave you with multiple retirement accounts that become difficult to manage.
Who Could Benefit?
Workers with decades remaining before retirement and enough disposable income to consistently save 15% or more of their income could benefit from aggressively building retirement assets during these years.
Who Might Not Benefit?
Someone with significant short-term financial obligations may need a lower contribution rate temporarily rather than putting themselves in a position where they need to borrow money for normal expenses.
Ages 35 to 44: Taxes and Income Planning Start to Matter More
This is often when financial life gets complicated.
You may now have children, a mortgage, higher insurance costs, a higher tax bracket, college savings goals, and substantially more financial responsibility.
That can change the Roth-versus-traditional calculation.
If higher earnings mean you should max out tax-advantaged accounts, such as a 401(k) and IRA, making traditional pretax workplace contributions can reduce current taxable income. That may leave additional money available for today’s expenses.
Ensure you also have adequate disability insurance to protect income.
Instead of thinking that everyone should be either 100% Roth or 100% traditional, consider creating tax diversification.
You could have money in traditional pre-tax retirement accounts, Roth accounts, taxable investment accounts, HSAs when eligible, and guaranteed-income products when appropriate.
Having different types of accounts can give you more control over where your retirement income comes from and how much of it may be taxable.
Your Early 40s: Start Thinking About the Cost of Future Income
Here is where our approach differs from a lot of conventional retirement advice.
Most retirement discussions focus entirely on building the largest portfolio possible.
We think you should also calculate how much money you actually need today to contractually guarantee part of your future retirement income.
Certain deferred annuities with Guaranteed Lifetime Withdrawal Benefit (GLWB) riders can establish future lifetime income without requiring you to permanently annuitize your contract.
Eligibility ages and contract rules vary by insurance company, so age 40 is not a universal minimum. But once these strategies become available, they are worth comparing with the conventional strategy of accumulating everything in investments and determining withdrawals later.
An Example From a Case We Ran
We previously ran a case involving someone in their early-to-mid 40s with approximately $420,000 in an old retirement account.
By repositioning that money into an annuity with a lifetime income benefit and allowing the income benefit to defer until approximately age 65, the contract illustrated roughly $100,000 of annual lifetime income.
Now compare that with a traditional 4% withdrawal calculation.
Generating $100,000 from a $2.5 million investment portfolio equals a 4% initial withdrawal.
Those two strategies are not the same thing. The annuity’s income benefit is insurance, not an investment account earning $100,000 annually. The income base used to calculate withdrawals is also not necessarily cash value.
But that is precisely why we believe people should compare the strategies.
Instead of only asking: “How can I accumulate $2.5 million?”
Also ask: “How much money would I need today to guarantee the future income I actually want?”
The objective can be to use a portion of your retirement savings to establish your future personal pension. Once that base income is taken care of, the rest of your retirement assets can potentially remain invested for growth, liquidity, emergencies, or your beneficiaries.
Pros
- Can establish contractual lifetime income years before retirement.
- Can reduce the risk of outliving your retirement savings.
- May allow you to dedicate other assets to growth rather than relying on every account for income.
- Some products offer joint lifetime income covering you and your spouse.
Cons
- Annuities can have surrender periods and withdrawal restrictions.
- Some lifetime income riders have annual fees.
- The income benefit base is typically not the same as your cash surrender value.
- Guarantees depend on the claims-paying ability of the issuing insurance company.
Who Could Benefit?
Someone who wants to establish a predictable future retirement paycheck and reduce dependence on future market performance could benefit from considering an annuity income strategy.
Who Might Not Benefit?
Someone who already expects more pension and Social Security income than they need may not need another guaranteed lifetime income source. An annuity may also be inappropriate for money you expect to need for short-term expenses.
Ages 45 to 54: Start Catching Up
If retirement is beginning to look much closer than it did at 35, start increasing your contributions.
At age 50, catch-up contributions allow those 50+ to contribute more to IRAs and 401(k)s.
Review your life insurance to ensure dependents are covered.
Take advantage of your employer match first. If your employer matches contributions up to 5%, 6%, or 7%, try to contribute at least enough to receive that full match.
Then increase your retirement savings as much as your cash flow reasonably allows.
This is also the decade when you should stop focusing exclusively on a retirement account balance and begin calculating an actual retirement-income target.
Don’t simply say: “I want $1 million.”
Ask: “How much monthly income will I actually need?”
A $1 million retirement account producing inadequate income doesn’t solve your problem. Conversely, someone with a smaller portfolio plus Social Security, a pension, and guaranteed annuity income may have enough to maintain their desired lifestyle.
Ages 55 to 64: Transition to Retirement Income Planning
This is where retirement planning needs to change significantly.
You’re no longer planning for something 30 years away. You may need to replace your paycheck within the next several years.
Reduce risk exposure with Fixed Annuities for steady income.
Consider a Qualified Longevity Annuity Contract (QLAC) to defer required minimum distributions (RMDs).
Review long-term care insurance to cover potential healthcare costs.
Start determining how much future income will come from Social Security, pensions, annuities, 401(k)s and IRAs, taxable investments, rental property, and part-time employment.
Then identify the shortage.
For example, if your lifestyle requires $100,000 annually and Social Security plus pensions will provide $50,000, your real retirement problem is figuring out how to produce the remaining $50,000 of reliable annual income.
This is where an independent annuity broker can compare how much guaranteed lifetime income different insurance companies will contractually provide.
With certain lifetime income riders, the account value can eventually be depleted while the guaranteed lifetime withdrawal continues according to the terms of the contract. Some contracts can also provide joint lifetime income covering both spouses.
That creates an income floor around which the rest of your retirement plan can be built.
Pros
- Creates predictable retirement cash flow.
- Reduces the risk of running out of income late in retirement.
- Can cover one or two lifetimes depending on the contract.
- Can reduce the need to constantly decide how much to withdraw from investments.
Cons
- You may sacrifice some liquidity.
- Income riders can have fees.
- Excess withdrawals can reduce future guarantees.
- You still need liquid savings for emergencies and unexpected expenses.
Who Could Benefit?
Someone approaching retirement who does not have enough Social Security or pension income to cover essential expenses may benefit from creating additional guaranteed lifetime income.
Who Might Not Benefit?
Someone whose pension and Social Security already comfortably exceed their expected expenses may have less need for additional guaranteed income.
Ages 60 to 64: Pay Attention to Taxes Before RMDs Begin
This can be one of the most valuable tax-planning windows of your life.
You may have retired, your employment income may have disappeared, Social Security may not have started yet, and required minimum distributions may still be years away.
That can create an opportunity to deliberately withdraw pretax retirement money or complete Roth conversions before RMDs begin.
We would not recommend blindly spending down your qualified retirement accounts simply because RMDs are coming.
Instead, determine whether taking withdrawals or completing Roth conversions during lower-income years could reduce your tax burden later.
For many retirees, the goal is to avoid reaching their RMD age with such a large pretax retirement balance that they are forced to recognize substantially more taxable income than they actually need.
Strategies to Consider
- Take controlled withdrawals from traditional IRAs or 401(k)s.
- Convert portions of qualified retirement accounts to a Roth IRA.
- Use qualified money for retirement expenses before tapping Roth assets.
- Coordinate withdrawals with Social Security.
- Consider Medicare premium implications when increasing taxable income.
- Coordinate annuity income with your overall withdrawal strategy.
When Should You Take Social Security?
You can generally begin Social Security retirement benefits as early as age 62, but starting early reduces your monthly benefit compared with waiting until full retirement age.
For many younger retirees, full retirement age is 67. Delaying beyond full retirement age can increase your benefit until age 70.
Our general preference for someone who can financially afford to wait is to seriously consider delaying Social Security until full retirement age or potentially age 70.
However, there is no single correct Social Security age for everybody.
You should consider your health, life expectancy, spouse’s benefits, other retirement income, tax situation, whether you are still working, and how badly you need income today.
Using an Annuity to Delay Social Security
One strategy involves using Guaranteed Income Annuities (SPIAs) or an annuity offering accelerated or front-loaded lifetime income.
Some contracts can provide substantially more guaranteed income during the first portion of retirement and then reduce the annuity payment later.
For example, you might use the larger annuity payment during your 60s to help replace the Social Security income you are postponing.
You can then start Social Security later at a higher monthly benefit. When the annuity’s accelerated income period ends and the annuity payment decreases according to the contract, the larger Social Security check can help fill the difference.
The exact income amount, reduction, timing, and availability depend on the annuity contract.
Pros
- Can help you retire before starting Social Security.
- May allow you to delay Social Security for a larger monthly benefit.
- Creates predictable income during the Social Security waiting period.
- Can coordinate two guaranteed income sources rather than relying entirely on portfolio withdrawals.
Cons
- Later annuity income may be substantially lower depending on the contract.
- The strategy requires careful coordination with Social Security.
- An accelerated income annuity may not be appropriate if you need level income throughout retirement.
Who Could Benefit?
Someone who wants to retire in their early 60s but would prefer to delay Social Security may benefit from using another guaranteed income source as a temporary bridge.
Who Might Not Benefit?
Someone with health concerns, a shorter expected lifespan, or an immediate need for Social Security income may have less reason to delay benefits.
Don’t Forget the HSA
If you are eligible for a Health Savings Account, it can provide another tax-advantaged savings bucket that can be particularly valuable because healthcare becomes a major expense in retirement.
An HSA can potentially provide tax-deductible or pretax contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses.
We view the HSA primarily as a healthcare account. If you can accumulate money for future medical expenses, great. But don’t neglect today’s healthcare needs simply to treat the account as another investment vehicle.
Insurance You Should Consider Along the Way
Retirement planning can fall apart even when your investment strategy is excellent. Disability, premature death, long-term care expenses, and healthcare costs can destroy decades of savings.
| Insurance | Who Could Benefit? | Why | Major Downside |
|---|---|---|---|
| Life Insurance | Spouses, parents, business owners, and people with financial dependents | Can replace lost income and protect survivors | Premiums and underwriting |
| Disability Insurance | Working adults whose retirement strategy depends on continued earnings | Helps protect the paycheck funding retirement | Coverage may be expensive depending on occupation and health |
| Long-Term Care Insurance | People who want to protect retirement assets from extended-care expenses | Can help pay for home care, assisted living, or nursing home expenses | Traditional policies can become expensive |
| Hybrid Life and long-term care or LTC Annuity | People with assets who want LTC benefits plus additional value if care is never needed | Combines long-term care protection with life insurance or annuity benefits | Can require a substantial premium or deposit |
| Medicare-Related Coverage | Most Americans approaching age 65 | Helps manage healthcare expenses during retirement | Plans, networks, premiums, and benefits vary |
| Umbrella Liability Insurance | People who have accumulated substantial assets | Can provide additional liability protection beyond underlying policies | Additional annual premium |
Buy Life Insurance Before You Need It
This is one area where people often wait too long.
You may be single at 25. That does not mean you will still be single at 45.
You may eventually have a spouse, children, a mortgage, a business, or other people depending on your income.
Life insurance generally becomes more expensive as you age, and your future health is unknown. Obtaining appropriate coverage while you are younger and healthier may allow you to lock in coverage before future health problems make insurance more expensive or difficult to obtain.
If your spouse and children depend on your income, do not force your retirement account to perform two different jobs.
Your retirement savings should fund retirement. Life insurance can protect your family against the financial consequences of your premature death.
Pros
- Can protect your spouse and children financially.
- Can help pay a mortgage and other debts.
- Can preserve retirement savings for the surviving spouse.
- Buying while healthy may provide better pricing and more options.
Cons
- Requires ongoing premiums.
- Coverage needs can change throughout your life.
- Permanent insurance can be substantially more expensive than term insurance.
Who Could Benefit?
Anyone whose death would create a financial hardship for a spouse, child, parent, business partner, or another dependent should consider life insurance.
Who Might Not Benefit?
Someone with no financial dependents, adequate assets to cover their obligations, and no meaningful legacy goals may have little need for substantial life insurance coverage.
Ages 65 and Older: Optimize Withdrawal Strategies
Medicare needs to be coordinated carefully with retirement.
For most people, Medicare eligibility begins around age 65. Your enrollment timing can depend on whether you are already receiving Social Security, still working, and covered by qualifying employer health insurance.
Do not treat healthcare planning as an afterthought.
A retirement-income strategy that works perfectly on paper can still create problems if healthcare and long-term care expenses were ignored.
Before retiring, determine when you should enroll in Medicare, whether you prefer Original Medicare or Medicare Advantage, whether you need Medigap coverage, how prescription drug coverage will work, and what you should budget for premiums and out-of-pocket expenses.
Work with an annuity expert to manage pension annuity options and ensure you don’t outlive savings.
Roth vs. Traditional: Which One Do We Prefer?
We generally favor Roth contributions when someone is young, has a relatively low current tax rate, and can comfortably afford the taxes today.
As income and tax rates increase, traditional contributions can become more attractive because the current tax deduction may have greater value.
Later in life, Roth conversions may allow someone to strategically move money from pretax retirement accounts into Roth accounts during lower-income years.
There is no universal answer.
The goal is to avoid reaching retirement with 100% of your savings exposed to the same tax treatment.
Having pretax, Roth, taxable, and guaranteed-income assets can give you considerably more flexibility when deciding where your retirement paycheck should come from.
Why Annuities Are Essential for Retirement Security
Regardless of your age, annuities provide guaranteed income for life, protecting against market downturns and inflation. If you want predictable income that lasts throughout retirement, we can help you compare the best options.
Money-Saving Tips for Retirement Planning
- Always capture your full employer match. It is part of your compensation, so don’t voluntarily leave it behind.
- Increase contributions when your salary increases. Even increasing your savings rate by 1% each year can make retirement saving easier.
- Review old 401(k)s. Don’t leave multiple retirement accounts scattered across previous employers without knowing their fees and investments.
- Compare Roth and traditional contributions. The tax strategy that worked at age 25 may not make sense at age 45.
- Plan Roth conversions before RMDs. Your early retirement years may provide an opportunity to move money strategically.
- Shop annuity companies. Guaranteed income can vary significantly from one insurance company to another for the exact same premium.
- Keep emergency money liquid. Don’t put money you expect to need soon into a long-term annuity or retirement investment.
- Coordinate Social Security instead of automatically claiming at 62. Determine how claiming earlier or later affects your overall retirement income.
- Protect the retirement plan. Life insurance, disability insurance, and long-term care coverage can prevent an unexpected event from consuming assets meant for retirement.
Alternatives to an Annuity
An annuity does not need to provide every dollar of your retirement income. Depending on your situation, alternatives or complementary strategies can include:
- 401(k) and IRA withdrawals: Provide flexibility but expose you to investment and longevity risk.
- Bond ladders: Can create scheduled income while maintaining greater control over assets.
- Dividend-producing investments: Can provide income and growth potential, but dividends are not guaranteed.
- Social Security: Provides inflation-adjusted lifetime income and should be coordinated with your other assets.
- Traditional pensions: Can provide significant guaranteed income for people fortunate enough to have them.
- Rental property: Can generate ongoing income but requires property management and carries real estate risks.
- Taxable investment accounts: Provide significant liquidity and flexibility but do not guarantee lifetime income.
For many retirees, the best solution is not choosing one strategy. It is combining several income sources so that guaranteed income covers essential expenses while liquid and invested assets remain available for everything else.
What We Recommend
- Start with whatever you can afford when you’re young.
- Increase contributions as your salary increases.
- Capture your entire employer match.
- Use Roth accounts aggressively when paying taxes today makes sense.
- Consider traditional contributions when the current tax deduction becomes more valuable.
- Keep track of retirement plans when changing jobs.
- In your 40s, begin calculating the cost of guaranteeing future retirement income instead of focusing exclusively on investment accumulation.
- In your 50s, maximize catch-up opportunities and determine exactly how much monthly retirement income you will need.
- In your early 60s, coordinate qualified withdrawals, Roth conversions, annuity income, Social Security, taxes, and Medicare.
- Throughout your working life, protect your retirement strategy with appropriate life, disability, healthcare, and long-term care coverage.
The entire purpose is to arrive at retirement knowing where your monthly paycheck is coming from before your employer stops issuing one.
Secure Your Retirement Future Today
At your current salary level, are you on track to meet your retirement goals? Let us help you build a customized retirement income plan that ensures financial security for life. Contact The Annuity Expert’s financial advisors and insurance agents today for free quotes and a no-obligation consultation.
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