How to Save for a Better Retirement in 3 Simple Steps

Louise Chauncey, CFA


July 8, 2015

People often consider saving for retirement a highly complicated task and thus avoid thinking about it too much. It’s important to start surveying your retirement savings options early, because though it may seem daunting, it’s not difficult to begin planning for a comfortable life after leaving the work force.

Once you deal with some basic matters, saving for retirement is quite easy. Here are three steps to help you save better and ultimately reach your retirement goals:

1. Know how much you need to save

Figuring out precisely how much you need in savings for retirement is impossible. You can’t know, for example, exactly how much you will spend on healthcare or food. But you can get a ballpark idea of your saving needs by estimating expected expenses in retirement. A financial advisor can do a basic forecast of your future expenses based on your current expenses, your future spending needs and your retirement goals. The advisor can also recommend how much of your income you need to save today while factoring in other retirement income sources you may have, such as Social Security and any pensions.

It’s important to prioritize your retirement savings over other long-term savings needs. Keep in mind that you and your kids can borrow money to pay for college, but you can’t borrow money to fund your retirement.

2. Consider tax-advantaged accounts

The government provides valuable tax breaks to retirement savers that you don’t want to miss. If you’re employed, your workplace retirement plan allows you to save on a tax-deferred or tax-free (Roth) basis and have contributions automatically deducted from your paycheck. Your employer may also match a portion of your contributions—which is essentially free money for you.

You might consider a Roth individual retirement account (Roth IRA) as a potential way to save beyond your workplace retirement account. A Roth doesn’t give you a tax deduction today, but it provides tax-free earnings growth and doesn’t require distributions in retirement (unlike traditional 401(k)s and IRAs). If you meet the income limits for contributing to a Roth IRA, it may be worth putting some of your retirement savings into one.

Self-employed individuals also have retirement accounts available to them, including traditional IRAs and individual 401(k)s. These accounts can provide significant tax breaks, with tax-deferred contribution limits sometimes reaching up to nearly $60,000 per year.

3. Find the right asset mix

Once you’re saving the right amount of money in the accounts that best suit your needs, the next step is making sure those savings are invested appropriately based on your personal investing horizon and risk tolerance. If you’re in your 20s, 30s or 40s, you likely have many years — decades — until retirement and will want to have a significant share of your savings invested in stocks, which have produced much better average returns than bonds and cash historically.

Your financial advisor can help you build a diversified portfolio of stocks, bonds and other investments tailored to your specific needs, including your expected retirement age and goals. You should consider reviewing your portfolio periodically with your advisor to ensure it still meets your goals. You also need to rebalance your portfolio occasionally to ensure your investment portfolio’s asset allocation doesn’t fall off course due to market performance.

Saving for retirement is not as complicated as you may think – on the contrary, it’s simply a case of being prepared.

A First Republic investment professional can guide you through the steps of determining how much you need to save for retirement, which savings vehicles make the most sense and finding the right asset mix for your needs.

The strategies mentioned in this document will often have tax and legal consequences; therefore, it is important to bear in mind that First Republic does not provide tax or legal advice.  This information is provided to you “AS IS”, does not constitute legal advice, is governed by our Terms and Conditions of Use, and we are not acting as your attorney. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here.  Client’s tax and legal affairs are their own responsibility – clients should consult their own attorneys or other tax advisors in order to understand the tax and legal consequences of any strategies mentioned in this document.