How to Invest for Retirement

According to the Society of Actuaries, the current average length of retirement for men and women in the U.S. is about 20 years.¹ For many adults, it will be even longer.

While Social Security can help supplement your income later in life, it may be hard to live off government benefits alone. Learning how to invest for retirement now can help you enjoy your later years. Here's what to consider.

4 Ways to Invest for Retirement

1. 401(k) Plans

If your employer offers a retirement plan, such as a 401(k) or 403(b), that's typically a good place to start saving. They might also match contributions up to a certain percentage of your salary, which helps to bolster whatever contributions you make personally.

Workplace plans also offer important tax features. Contributions to a traditional 401(k), for example, are deducted from your taxable income. For the 2025 tax year, the IRS allows you to contribute up to $23,500 if you are under age 50; if you are over age 50, you can contribute an additional $7,500 for a maximum of $31,000.² Your earnings are tax-deferred until you make withdrawals, which is another way employer-sponsored accounts can help to maximize the potential growth of your savings.

2. IRAs

One limitation of 401(k) plans is that you have to choose from a menu of investment vehicles chosen by your employer. Your options may include a mix of index funds, exchange-traded funds (ETFs) and actively managed funds. They may also include target-date funds that gradually shift assets away from stocks as you near retirement.

If you're looking for a greater degree of choice, or if you've perhaps reached the limit on your 401(k) contributions through your employer, you might consider an individual retirement account (IRA) as an alternative. With IRAs, you generally have more investments to choose from. These may include mutual funds, individual stocks and bonds, and even gold and silver coins minted by the U.S. Treasury.

For the 2025 tax year, the IRS allows you to invest up to $7,000 in IRAs if you are under age 50; if you are over age 50, you can invest an additional $1,000 for a maximum of $8,000.³ There's no cap on the amount you can roll over from a previous employer's 401(k). While IRAs tend to offer greater flexibility than workplace plans, you may want to consider maxing out your employer's match to contributions of a 401(k) or 403(b) before investing elsewhere.

3. Annuities

When planning for life after your working years, another option you may want to explore is an annuity, which is a long-term investment designed for retirement purposes. An annuity has an accumulation phase as well as a payout phase. When annuitized, it can guarantee a stream of income that may help you maintain a comfortable lifestyle for the rest of your life. There are two general types of annuities: fixed and variable.

When you buy a fixed annuity, you are guaranteed an interest rate for a certain period of time. At the end of this period, the provider will declare a renewal interest rate and another guarantee period. Additionally, most fixed annuities have a minimum interest rate that is guaranteed for the life of the contract. In other words, regardless of market conditions, you will never receive less than your guaranteed percentage rate. Keep in mind that guarantees are based on the claims-paying ability of the issuer.

With a variable annuity, you have added control over your investment dollars. You can allocate your funds among a variety of investment options with objectives ranging from aggressive to conservative, called sub-accounts. Your investment returns are tied to the performance of the underlying investments of the sub-accounts. If you are willing to accept a higher rate of risk in return for higher growth potential, variable annuities may be an appealing strategy to reach your retirement goals.

4. Brokerage Accounts

If you've run up against your contribution limits for workplace plans, a brokerage account may be your next stop. While tax treatment may differ for these accounts, you'll typically enjoy the freedom to invest in a wide range of securities.

While brokerage accounts may allow you to take bigger risks than a workplace plan — some accounts allow you to trade options, for example — retirement savers may want to consider a passive strategy that includes hanging on to an investment, regardless of how the market performs. Investments cannot guarantee growth or sustainment of principal value; they may lose value over time. Past performance is not an indication of future results. Consider talking to a financial professional as you determine the right strategy.

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Investment Options

In addition to choosing from different types of accounts, you can often select investments inside of those accounts. It may be wise to diversify by spreading your assets out into a variety of areas. Here are some to consider.

Mutual Funds

Mutual funds allow you to buy a single investment that can provide exposure to numerous underlying investments. As a result, diversifying your holdings is relatively easy.

Mutual funds typically have an investment objective, so it's important to understand each fund's strategy and choose funds that align with your goals. For example, some funds offer an all-in-one approach for aggressive or moderate growth. Other funds invest in a narrow slice of the market, such as large companies based in the U.S.

Exchange-Traded Funds

Exchange-traded funds (ETFs) provide diversification and a variety of investment objectives. ETFs are passively managed and tend to follow one or more market indices. Because ETFs are passive, costs may be lower than more actively managed investments.

For most long-term investors, the ability to trade ETFs during trading hours may not matter, but for some, this may be an attractive feature.

How Much Money Will You Need for Retirement?

Without having a sense of what your retirement budget will look like, ensuring that you have adequate savings can be a difficult task. A lot of adults end up spending less after they stop working, since they no longer have a daily commute or job-related expenses cutting into their budget. But the reality is that there's no one-size-fits-all answer — your future spending level depends on a number of factors that are unique to each individual.

When estimating your retirement needs , you may want to consider the following factors:

• Will you have part-time work or a pension to supplement your income from investments?
• Do you plan to travel extensively or pursue expensive hobbies that will cost more money?
• Will you have a mortgage or other significant debt to pay off?
• Do you have health concerns that require expensive treatments?
• If you're in good health, will you need more assets to sustain a long retirement?
• Will you need to support children or grandchildren?

Age-Based Investment Strategies

As you progress in your career, it's important to periodically reevaluate your investment strategy to help ensure you're on track to meet your goals. While younger investors tend to focus on long-term growth, you may want to gradually reduce your exposure to market risk as you advance toward retirement.

Investing in Your 20s & 30s

The earlier you start putting away money into a workplace plan or other investment vehicle, the less likely you'll have to play catch-up later in your career.

Because younger investors likely have several decades before retirement, most experts suggest maintaining a stock-heavy asset mix that has the potential for greater returns in the long run. While positive returns are never guaranteed, there is more time to ride out any downturns in the market.

Those who are in the earlier stages of their career may also want to consider Roth 401(k)s — if your employer offers it — or Roth IRAs. Unlike traditional retirement plans, your contributions in a Roth account aren't tax-deductible, but you won't owe any taxes on your gains in retirement as long as you meet certain requirements for a qualified withdrawal. (Retirement distributions taken before the age of 59½ will incur a 10% early withdrawal penalty.) If you're not earning as much as you will later in your career, taking that tax hit now while you have a lower marginal rate could prove beneficial.

Investing in Your 40s

As you enter your 40s, you're likely earning more than you did when you joined the workforce. That's why this stage of your life can be a great time to ramp up your savings rate.

Keep in mind that time is still on your side at this age since you likely have two decades or longer before your actually retire. So, while you may slowly add more bonds and other fixed-income securities to your portfolio, you might also want to consider leaning more toward stocks, which may provide greater long-term returns. If you're wondering what allocation is best for your age and lifestyle goals, you can ask a financial professional for advice on the right approach for your situation.

Investing in Your 50s

Most Americans will move through several jobs in their career, which means you may have one or more 401(k)-style accounts with a prior employer. If that's the case, you have the option of rolling them over into your current workplace plan (if it allows this) or an individual IRA. Consolidating your accounts can make it easier to track your savings rate and help ensure that your overall mix of stocks, bonds and other investments is suitable for your age and long-term goals.

If you find that your account balances are a little low, you can take advantage of the "catch-up" provision in the tax code. For 2024, it allows investors who are age 50 or older to put an extra $7,500 a year into their workplace plan and an extra $1,000 into an IRA.³

Investing in Your 60s

Wondering how to invest for retirement at age 60? As you inch closer toward retiring, you might consider spreading your assets more evenly between stocks and safer instruments, such as bonds and money market accounts. However, moving too many assets out of equities can create risks, too, since you may not generate enough returns to support a longer retirement.

In addition to adjusting your investment balance, the start of your 60s can be a good time to think about when you're going to file for Social Security. While you can collect benefits as early as age 62, you'll receive a smaller monthly benefit by doing so. If you're in good health, you may want to wait to collect in order to reap your largest benefit. You can delay benefits until age 70 at the latest.

Getting on Track

After putting away money for other expenses, such as mortgage payments or grocery bills, having enough left over to adequately fund your retirement account can be a daunting task. If you're falling a little behind on your investments, here are some ways you could help boost your contribution levels:

• Put yourself on a budget. The more closely you track your expenses, the more likely you are to find products and services that you could live without. For example, after shedding unnecessary video subscriptions or takeout meals, you'll have a little more to put toward a 401(k) or IRA.
• Automate your savings. Once funds enter your bank account, there's always a temptation to use them on things you don't really need. Setting up payroll deductions into your workplace plan may make saving easier. Even if your employer doesn't offer a retirement plan, you can create automatic withdrawals to help to build up your IRA or brokerage account.
• Make incremental adjustments. Jumping from a savings rate of, say, 2% to 15% can be a huge shock to your budget. A more realistic way to ramp up your contributions is to start with small adjustments so you can gradually adjust your lifestyle accordingly. After a while, you can continue increase your deductions incrementally until you reach your desired rate.
• Take advantage of matching funds. Not everyone is fortunate enough to have an employer that offers matching 401(k) contributions. If you do, you likely don't want to leave that money on the table.

Investing with a long-term horizon generally requires that you not only set aside enough money each month, but that you also choose a blend of assets that suit your age and investment objectives. If you're feeling overwhelmed, a financial professional can review your situation and discuss strategies that will help you prepare for when it's time to finally retire.

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Sources

1. What Is the Average Retirement Age? https://www.ramseysolutions.com/retirement/average-retirement-age.
2. Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits.
3. 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000. https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000.