Saving for retirement seems simple enough, right? If only.
Let’s look at retirement plans and explore your options.
How Do You Know How Much To Save for Retirement?
The truthful answer is also the simplest answer: You don’t.
You don’t know how much you will earn throughout your life. You don’t know what stock market shifts might do to your investments. You don’t know when you might want — or have — to retire. And, not to be morbid, but you don’t know how long you’ll live.
Life is full of uncertainty, but it’s wise to do your best to plan for various contingencies. This means saving what you can.
The general rule of thumb is to save 10%–15% each year. In 2023, the median household income in the U.S. was $80,610. So, if a married couple makes the median income and saves 10% per year from ages 30 to 70, they’ll have about $320,000. That’s a big number, but frankly, it’s probably not close to enough. That’s why you shouldn’t just save money in a shoebox under your bed — you grow it.
Retirement Contribution Options
Let’s look at some retirement savings accounts.
Savings Accounts
Savings accounts work the same as a checking account, except they offer higher interest rates and fewer withdrawals. You might incur a penalty for taking money out, so you’re incentivized to leave your money in the account. Savings accounts are versatile; you can save for retirement, for a home purchase, for your kids’ college education, or a rainy day. But they’re not specifically for retirement.
401(k)
A 401(k) is a definite contribution plan that employers may offer their employees. You can contribute a percentage of your salary and your employer may match it up to a set limit. Total contributions to a 401(k) by both employee and employer may not exceed $70,000 and $77,500, respectively, in 2025. Furthermore, the total contribution cannot exceed 100% of the participant's compensation.
For traditional 401(k)s, you make pre-tax contributions, so it reduces your taxable income. For a Roth 401(k), however, you make post-tax contributions, but this means you’re less likely to pay tax on post-retirement withdrawals. 401(k) investment vehicles often include mutual funds chosen by the sponsor.
Individual Retirement Account (IRA)
Brokerage investment firms offer IRAs, and these typically have more investment options than 401(k)s. However, contribution limits are much lower. You can't contribute more than $7,000 to an IRA in 2025, with an IRA catch-up contribution limit of $1,000 for those 50 and over. Employers rarely sponsor IRAs, so there are no matching contributions. Small companies might offer Savings Incentive Match Plan for Employees (SIMPLE) IRAs or Simplified Employee Pension (SEP) IRAs.
Which Is Best?
It depends on you! If you’re self-employed, then a 401(k) isn’t an option. If you have a steady job and want a relatively safe bet, then a 401(k) might be great. But you don’t have to decide alone. Contact a Vectra Bank professional today and learn more about your options!
