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Younger workers and retirement: The 'to-do' list

Kelly Kowalski, Cliff Noreen, and Bronwyn Shinnick

Posted on October 05, 2022

Our executives and experts team up to write educational articles, covering a variety of financial topics such as life planning, college savings, and retirement.
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Go over tactics that can help younger workers establish a savings plan and budget.

List the kind of retirement plan options available to most workers and savers.

Examine the various rules of thumb for how much someone should save for retirement.

Retirement saving is not on most young workers’ list of top priorities. That may be why many experts expect that the current cohort of younger workers will not be able to retire until well into their 70s.

In fact, according to one survey, roughly half of millennials (born between1980-1996) and Generation Z (born after 1997) believe they are not saving enough for retirement.1

In light of the economic disruption brought on by the coronavirus pandemic, retirement planning is not only near the bottom of financial priorities, it may even seem more like a pipe dream than an eventual reality. But it doesn’t have to be.

Despite your current expenses, it is not too early to consider retirement planning. And there are some steps you can take to start saving right away that don’t involve eating Ramen noodles every night.


With so many expenses stretching their budgets, many young people starting out may feel like they can't afford to save for retirement. But a budget that prioritizes savings can help you take a closer look at your recurring and nonrecurring expenses each month to set aside a reasonable amount. (Related: How to make a budget)

And the first step in prioritizing savings? Taking a look at retirement plans available to you.

Retirement plan types

401(k): Some retirement savings accounts offer good tax advantages and investment opportunities. In fact, many employers offer programs like 401(k)s that contribute to the plans on your behalf. This is a retirement plan that you can start investing into right away.

Contributing to a 401(k) account has three distinct advantages:

  • You will receive an immediate tax break because your contributions come out of your paycheck before taxes are withheld.
  • If your employer matches a portion of your contributions, you are essentially getting free money to invest. These plans commonly involve an employer matching between 50 percent to 100 percent of your contributions, up to a certain threshold.
  • You also have the advantage of tax-deferred growth for most of these plans. This means that you will not be required to pay taxes each year on capital gains, dividends or other yield distributions. However, if you withdraw your money from the account before you are aged 59 1/2, you will typically owe income taxes on the amount withdrawn along with a 10 percent penalty.

IRA: A traditional IRA is a tax-deferred retirement savings account. This means that you only pay taxes when you take the money out at retirement. The advantage here is that you do not need to pay taxes on any of the dividends, compound interest payments or capital gains you earned over the years until you withdraw your money. However, any amount you withdraw before age 59 ½ will typically subject you to income taxes and a 10 percent penalty.

You may also have heard about Roth IRAs. The difference between the two is that traditional IRA contributions are state and federal income tax deductible for every year you contribute, but you pay income taxes when you withdraw at retirement age. (Related: Traditional vs. Roth IRAs)

Roth IRAs are not tax-deductible, but like traditional IRAs their growth is not taxed. Unlike traditional IRAs, however, your withdrawals at retirement age are not taxed.

You can learn more about IRAs here or you may opt to consult a financial professional to learn more about the benefits of a Roth IRA versus a traditional IRA for your own situation. (Learn more: A 401(k)-Roth combo strategy)

Invest: In addition to retirement plans, you may want to invest for long-range goals like buying a house or other major asset. Remember, different investment vehicles come with different expenses and charges. That is why you may want to look at investments like index funds and mutual funds or even annuities with low expense ratios across a wide range of asset classes for diversification.

Retirement savings: How much?

There is no cookie-cutter answer. It depends on your goals, lifestyle, cost of living and various other factors. But one way to help is to use this retirement calculator to get a better idea of what you are up against with your retirement savings.

  • 15 percent: One rule of thumb is to save 15 percent per year. According to a research paper from the Center for Retirement Research at Boston College, people that consistently saved 15 percent of their income per year were better positioned to meet their retirement planning goals.2 For instance, if you saved that amount on a $50,000 salary for 35 years, you may have somewhere around $1.5 million saved.
  • 8 times: Another rule is to save roughly 8 times the amount of your final salary. For instance, if your ending salary is $75,000, you may want to save around $600,000. This is an amount that may be within reach of your retirement savings plans.
  • 70 percent: A third common rule is to replace a minimum of 70 percent of your pre-retirement income, which is the average income for roughly the last ten years leading up to retirement. You may want to use this retirement savings calculator to estimate how much pre-retirement income you will need to put aside. Seventy percent is an estimate, but the point is that retirement can be expensive. So that number may be a good place to start in order to maintain your standard of living.

Regardless of which savings target you choose, the important point for younger workers is to get a program in place early. (Related: Saving for retirement in your 20s: Doing the math)

Retirement and financial priorities

Retirement saving is difficult when so many other financial issues might seem like they should have priority. Student loan debt, life circumstances, and family obligations, are just some of the financial factors you may contend with. Saving, let alone investing, may not seem feasible as you try to make ends meet. (Related: When student loan and 401(k) compete)

But not saving early for retirement may put you at risk of having to retire later than you want or under less-than-ideal circumstances. That may not seem unreasonable, but with potential factors like health problems, getting laid off or various other issues beyond your control, you may be forced out of the workforce before you have enough saved to retire ― at least not as comfortably as you intended.

This is particularly important because according to the CDC, the average life span in the U.S. stands at about 77 years. That may leave you with 15, 25, or even 30 retirement years.

While retirement is still decades away for younger workers, it’s never too soon to consider it, especially if you plan on having children soon. It may also be time to consider other options that could go along with retirement considerations, like life insurance, long-term care insurance, annuities, or disability income insurance, to name a few.

So, while it is important to consider retirement, the suitability of saving varies from person to person. These tips mentioned above are just some ways to start saving. But that’s why some people opt to consult a financial professional to help assess their assets.

To be sure, this advice comes from an insurance provider. But it doesn't change the general wisdom of considering the feasibility of saving for retirement in your 20s and 30s.

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1 Wells Fargo, “Retirees Live a 20th Century Retirement in the 21st Century,” October 18, 2019.
2 Center for Retirement Research at Boston College, “How Much Should People Save?”, July 2014.
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The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.