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How to Invest for Retirement at Any Stage of Your Career

Aug 14, 2021 5 min read Ben Gran

Key takeaways

  • How you invest for retirement rests on your age, goals and risk tolerance.
  • Maximize your contributions to retirement plans such as 401(k)s and IRAs.
  • Increase your savings every year (and play “catch-up” when you're over 50).


What's your plan for retirement?


There are many ways to invest for retirement; the ones you choose will depend on your age, career status, financial situation, retirement lifestyle goals and comfort with investment risk. But wherever you are, the right strategy can pay off in spades. Here’s a list of tips to consider at each age and career stage.

  1. Early career
  2. Mid-career
  3. Late career


Early career: Build the nest

When you’re just starting out, you might not think about—let alone think you can afford—saving for retirement. But time is on your side. Any money you set aside early in your career will have many years to grow. In fact, thanks to the power of compound interest, the sooner you start saving for retirement, the less you'll probably have to save to reach your goal. Likewise, the more you invest early on, the better off you'll likely be later.


Maximize your workplace plan

If you have a retirement savings plan (like a 401(k), 403(b) or 457) at work, take full advantage of it. These tax-favored plans let you invest in a menu of stock, bond and other funds, and the money comes directly from your paycheck, so you're less likely to miss it.

With a “traditional” account, you invest pretax dollars and will owe income tax on withdrawals (presumably when you’re retired and in a lower tax bracket). With a “Roth” account, you invest after-tax dollars—but withdrawals are tax-free if you meet certain criteria, which works best if you don't need a current tax break or expect your bracket to be higher down the road.

In 2022 you can contribute up to $20,500 to a workplace plan ($27,000 if you’ll be at least age 50 by Dec. 31). So enroll as soon as you can, and contribute as much as you can. (If your employer offers a match, save at least enough to earn every extra dollar they’ll give you.) And over time, try to save more.


Open an IRA

If you’ve maxed out on your employer’s plan, want more investment choices or simply don’t have a plan at work, consider an individual retirement account (IRA). Like workplace plans, traditional IRAs give you a tax break upfront (contributions are tax deductible). Meanwhile, Roth IRAs work with after-tax dollars but offer tax-free withdrawals when you retire. Depending on your income, in 2022 you can contribute Opens in new window up to $6,000 to IRAs ($7,000 if you’ll be 50+ by year-end).


Diversify your investments

Diversification, or dividing your money among different types of investments, should be a key part of your retirement savings strategy. By “spreading your risk” across a range of asset classes (stocks, bonds, cash, etc.) and subclasses (anything from large-company U.S. stocks to Eastern European government bonds), you insulate your portfolio against severe loss if one investment suddenly loses value.

Mutual funds and exchange-traded funds (ETFs) offer a degree of diversification—each holds dozens, even hundreds or thousands, of investments at once. In particular, low-cost “index” funds, which aim to match the performance of broad sections of the market, can help you save money while mitigating some risk.


Take your time

In general, the longer your “time horizon” (how many years until you’ll need your money), the more risk you can afford to take to seek greater long-term rewards. Because you’ll have more time to recover from losses, that means focusing on equities (stock investments), which have outperformed other types of investments over long periods—but with serious road bumps along the way. Later, you’ll want to shift toward fixed income (bond) investments, which have provided more stability (with smaller long-term returns).


Consider a target-date fund

If you don’t want to figure out exactly where to invest and when to make changes, a target-date fund can do the work for you. These “funds of funds” invest in a range of stock and bond funds, and their holdings gradually shift from more aggressive (stocks) to more conservative (bonds) over time. So, you can simply choose a fund whose target date is closest to the year you plan to retire.


Mid-career: Stay on track

Once you're well into your career, your earning power and, hopefully, retirement savings have gained momentum. Maybe you’ve gotten that big promotion. Maybe you've changed careers or started a business. Maybe you've paid off college loans and freed up extra cash.

Because your financial situation is likely more secure, it's important to take a closer look at your strategy.


Evaluate your investing style

With retirement still decades away, you might be able to tolerate an aggressive mix of investments—more stocks, fewer bonds and less cash. Prudential’s What’s Your Investing Age? tool can help you assess your investing style.


Start thinking about retirement income

Mid-career is also a good time to consider how much money you’ll need for a retirement that could last 30 years or more. At this point it’s hard to forecast your lifestyle and expenses after work. But instead of targeting a “number” for your savings, think about how your nest egg will generate monthly income.

Prudential's retirement calculator can put you in an income mindset, and show you if you’re on track to meet your needs (and if not, whether to make changes while time is on your side).


Save more as you earn more

Lifestyle creep is a significant challenge to retirement saving. Rising incomes and busier lives can mean a nicer car, larger house, costlier vacations and extra conveniences. It’s great to enjoy life as you're living it, but don’t neglect your future. Increased income can be an opportunity to live better—and invest more for retirement. For example, earmarking half (or more) of each pay raise or bonus for retirement—or merely boosting your savings by 1% a year—can be a relatively painless way to grow your nest egg.


Late career: Putting your savings to work

If you’re in your 50s or 60s, retirement is no longer a far-off goal but an imminent event. While it’s tempting to stand back and view the culmination of your life's work, making sure you’ll be ready to retire comfortably can be stressful. But it doesn't have to be.


Know your numbers

It’s important to have a solid understanding of your overall financial portrait. This includes how much you spend each month today, what you expect to spend in the future (including potential health care costs)—and how much you’ll be able to withdraw from your savings without running out of money. This is even more critical if you're far from your "full" retirement age Opens in new window but want to retire early.


Catch up when you can

If your retirement savings aren’t where you want them to be by your 50s, don’t fret. There's a good chance you’ve entered your peak earning years. Maybe your kids are out of school, your mortgage is paid off, and you have more disposable income. Plus, once you hit the big 5-0, the IRS lets you make extra, "catch-up" contributions to workplace retirement plans and IRAs.


Don’t forget about Social Security

America’s financial safety net has become a lifeline for many retirees. But hopefully you'll have saved enough for Social Security to be a solid supplement to other retirement income. How much you'll receive depends on what you paid into the system during your career and when you begin taking payments. (Hint: The later you start, through age 70, the bigger your monthly checks will be.) That's why it's important to understand your Social Security benefits.


Consider an annuity for lifetime income

Once you’ve retired, the main goal of your investments isn’t long-term growth (though you do want your money to outpace inflation). Instead, you want to generate enough income to live on, for as long as you live. Shifting at least some of your nest egg to an annuity* could provide you with protected payments for life.


What you can do next

If you haven’t started investing (or saving more) for retirement through a workplace plan or IRA, now's the time. Online tools like Prudential’s retirement calculator and What's Your Investing Age? can help you evaluate your risk tolerance and project your retirement income—but be prepared to adjust your saving and investing strategies along the way. Of course, everyone’s situation is different, and when it comes to investing, there are no guarantees. So, talk things through with a financial professional. They can review your specific situation and help set goals to keep you on track.

*Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. A financial professional can provide you with details.



Ben Gran is a freelance writer based in Des Moines, Iowa. He writes about personal finance, public policy, financial services, technology and business.


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