When it comes to saving for retirement, most Americans fall short. According to the Federal Reserve, about a quarter of Americans have no retirement savings at all, and almost two-thirds of non-retired adults are concerned about being able to meet their retirement savings goals.

Don’t let those numbers get you down. If you’re worried about your retirement savings game, or haven’t started saving for retirement yet, this guide can get you on track regardless of where you are in life or how much you have to invest. And if you’re a little further along in your retirement savings journey, we’ll show you how to maximize your strategy by taking full advantage of different types of retirement accounts.

7 Steps to Save for Retirement

Saving for retirement doesn’t have to be intimidating. Follow these seven steps to develop your personal retirement investing strategy:

1. Set Your Retirement Savings Goal

It’s relatively easy to estimate how much you need to save for a new car purchase or a home down payment. How much to save for retirement, on the other hand, is a much bigger, more challenging personal finance goal—it may feel a lot harder to get right.

There are so many variables to consider. How much will you need for vacations? Could you end up facing big medical expenses? What age will you stop working entirely? How long will you actually live?

According to the Center for Retirement Research at Boston College, most of us should start savings around 15% of our income starting at age 25 if we hope to retire by age 62. If that amount sounds too high, too early, that’s okay. Starting later just means you may have to save a higher percentage, reduce your expenses, or work longer.

Someone who started saving at 35, for example, could hypothetically fund a comfortable retirement by contributing 24% of their income until age 62 or 15% of their income until age 65.

Use the 25x Rule to Calculate Your Retirement Needs

If you have a better idea on what your annual expenses might be in retirement, you can create a more personalized goal for yourself using the 25x rule. Estimate your annual expenses in retirement and multiply that figure by 25. If you think your annual expenses will be $50,000, for example, the 25x rule suggests you’d need a total of $1.25 million saved to retire without having to worry about depleting your nest egg early.

The theory behind this rule of thumb is the 4% safe withdrawal rate. The 4% rule suggests that over a 30-year retirement, you can safely withdraw 4% of your portfolio in year one of retirement, then keep withdrawing the same dollar amount, adjusted for inflation each year, to prevent running through your savings early.

Determine Your Monthly Savings Rate

Once you’ve determined your total retirement savings goal, estimate how much you’ll need to set aside each year to reach it using a retirement savings calculator. Estimate market returns at a conservative 6% per year, even if historically market returns have been higher.

Assuming a 6% rate of return and the $1.25 million figure from our earlier example, you would need to save about $218,000 over 30 years to reach this hypothetical retirement goal. That works out to $7,266 a year or $605 a month.

2. Open a Retirement Account

Once you’ve figured out how much you need to save, it’s time to open a retirement account. Historically, investments in the stock market have offered significantly better returns than savings accounts, making them the preferred tool for growing your retirement savings.

Not all investment accounts are ideal for retirement savings. To encourage people to save for retirement, the federal government has created special types of investment accounts, popularly known as retirement accounts, that provide certain tax advantages.

There are two main types of retirement accounts: employer-sponsored retirement accounts, like 401(k)s, and individual retirement accounts (IRAs). In general, both types of accounts are available in traditional and Roth varieties. Both offer tax-advantaged growth of your investment money, but you pick whether you’d prefer an income tax break now or in retirement.

Employer-Sponsored Retirement Accounts

Employer-sponsored retirement plans are benefits companies offer their employees. The most well known is the 401(k) plan, but depending on where you work, you may have access to a 403(b) plan, 457(b) plan, SEP IRA, or SIMPLE IRA. With a workplace retirement plan, you’re generally able to have a portion of your paycheck deposited into your retirement account automatically each pay cycle.

In addition to the tax benefits they offer, employer-sponsored retirement accounts are valuable because they may offer employer contributions or 401(k) matches. These are funds invested in your retirement account for you by your company. With a 401(k) match, you have to contribute a certain percentage of your salary to your retirement account. In return, your company invests an amount that reflects that percentage, effectively doubling your money. Outside of matches, some companies may offer other employer contributions to your retirement account, like profit sharing or safe harbor contributions, that you don’t have to do anything to receive.

With a 401(k), 403(b), and 457(b), you can contribute up to $19,500 per year ($26,000 if you’re 50 or older) in 2020 and 2021. SEP IRAs do not allow for employee contributions, but your employer can contribute up to the lesser of $58,000 in 2021 ($57,000 in 2020) or 25% of your salary. With SIMPLE IRAs, you can contribute $13,500 per year ($16,500 if you’re 50 or older) in 2020 and 2021.

Individual Retirement Accounts (IRAs)

If you don’t have access to a retirement account at work or are looking to save for retirement outside of it, you have two main choices: traditional IRAs and Roth IRAs. To contribute to either, you must have a taxable income for the year. Roth IRAs come with further income restrictions. To contribute the maximum amount to a Roth IRA, you must make less than $124,000 if you’re single or $196,000 if you’re married and filing taxes together.

For 2020 and 2021, the IRA contribution limit is $6,000, or $7,000 if you’re 50 or older. Single people with incomes up to $139,000 in 2020 ($140,000 in 2021), or couples that earn up to $206,000 (up to $208,000 in 2021), may contribute to a Roth IRA.

3. Choose Your Investments

Whether you get a tax-advantaged retirement account through work or you open an IRA on your own, mutual funds, index funds and exchange-traded funds (ETFs) are generally considered good investments for long-term retirement savings.

Index funds offer instant diversification in hundreds or thousands of stocks and bonds. Historically, they’ve even regularly outperformed actively managed mutual funds run by professional investors. A simple portfolio consisting of a bond fund and a broad market index fund, like an S&P 500 fund, can be a good starting point for most investors.

Deciding how many funds to buy and how much of your balance to invest in each fund is referred to as your asset allocation strategy. This approach balances your appetite for risk with the amount of time before you retire to help you divide up your retirement funds properly among different investments.

Ideally, you shouldn’t need to regularly check in on your retirement account’s performance, but you will probably want to adjust the balance of your portfolio among stocks, bonds and cash as you age. Over time, your portfolio can stray from your preferred asset allocation.

If you want a truly hands-off, set-it-and-forget-it approach to retirement saving, consider target-date funds or robo-advisors. For a small fee, these great options give you pre-mixed retirement portfolios and automatically adjust your holdings as you age and the market evolves.

Target-date funds are available in many workplace retirement plans and brokerages offering IRAs. Robo-advisors generally allow you to open IRAs, but some companies may partner with robo-advisors to offer their employees workplace retirement accounts.

4. Set Up Automatic Recurring Deposits

Most financial advisors recommend you set up a regular cadence of deposits into your retirement accounts, whether that’s through a workplace 401(k) or in an IRA. If you’re using a 401(k) at work, you’re probably already set. If you’re investing with an IRA, make sure you’re making regular deposits that won’t exceed the annual limits.

Not only does this keep you from having to take the time and energy to buy investments every month or week, but it also prevents you from spending money you’d rather save. It also may help you pay less per share on average, thanks to a powerful principle called dollar-cost averaging.

5. Regularly Increase Your Retirement Savings Rate

You may not be able to immediately save 15% of your income for retirement—and that’s fine. You can start small to take advantage of the crucial role that time plays in compounding your investment returns.

To help you reach your retirement goals, many financial advisors recommend you increase the amount you contribute to your retirement accounts by 1% every year until you reach at least 15% of your salary. You also can increase your retirement savings the following ways:

• Automatically save a portion of raises or bonuses. If you get a bonus or raise, adjust your contributions right away to deposit the difference in your paycheck to your retirement fund.

• Save your windfalls. If you get a tax refund or other unexpected windfall, use some or even all of the extra money to make a contribution to your IRA.

• Once you pay off debt, direct those payment amounts to retirement. As you pay off student loans, car loans, or credit card debt, don’t redirect the amounts you were paying into spending. Keep making the same monthly payments—just direct them into your retirement accounts.

• Avoid lifestyle inflation. Lifestyle inflation or lifestyle creep is our tendency to spend more when we have more. Instead of upgrading to a larger home or purchasing a new car when you get a raise, try to make do with what you have to minimize your expenses and funnel your extra cash to your savings.

6. Open an Additional Retirement Account

There are plenty of reasons to have more than one or even two retirement accounts. You might consider opening additional retirement accounts if your employer-sponsored plan charges excessively high fees or you don’t like the investment options it provides.

If you’ve been on top of your savings game this year, you might open another retirement account if you’ve hit annual contribution limits on your main account. Consider opening a traditional IRA or a Roth IRA (depending on your eligibility), and set aside another $6,000 for retirement—or $7,000 if you’re 50 or older.

Account options become more limited once you’ve maxed out your annual IRA contributions. If you have a side hustle, take a look at an SEP IRA or Solo 401(k) to invest some of your earnings. Just remember, while you can have multiple IRAs and 401(k)s accounts, annual contribution limits count across all accounts.

And if you’re a really good retirement saver and you’ve exhausted your tax-advantaged retirement account options, invest in a taxable brokerage account. While they lack the favorable tax treatment of many retirement accounts, they’re still a very useful tool to keep investing for retirement.

7. Keep Things in Perspective Through Good Times and Bad

Historically, the stock market has seen average returns of about 10%. The key word in that sentence is average. There have been years when the benchmark S&P 500 has grown more than 20%. And then there are years when its performance has sunk deep into the red.

When you’re investing for long-term goals like retirement, remember that after all periods of negative performance, the stock market has recovered its losses and kept moving higher. So don’t get too hung up on your retirement portfolio’s performance from day to day, or even from month to month or year to year.

Retirement is a long game, so you need to take the long view.