Saving for retirement isn't easy, but neither is living on Social Security. My family isn't banking on the future of entitlements, which is why we funnel 25% of our income into long-term savings. Check out the methods we use to hit our goals while preserving our quality of life.

Know how much you'll need

We didn't arrive at a 25% savings target by accident. When deciding how much to earmark for retirement, it all came down to maintaining our current standard of living, and the "average" numbers weren't adding up. 

Merrill Lynch's 2017 Finances in Retirement Survey found that 30 years of post-employment living requires $738,400. Fair enough, but how does that number translate into annual income? Assuming we follow the 4% rule, which holds that retirees can withdraw 4% of their savings per year without running out of money, this figure shakes out to $24,613 per year. That's only a little more than $2,000 per month. Ouch.

Coins stacking up

Image Source: Getty Images.

As you can see, while three-quarters of $1 million may seem like a lot of money, there's a good chance it won't come close to what you actually need. To hone in more closely on this figure, a good rule of thumb is to multiply your annual expenses by 25. That's roughly what you'll need to maintain your current standard of living through retirement.

Money in a mouse trap

Image Source: Getty Images.

Invest pay raises

You're not alone if it seems impossible to prioritize retirement. Half of Americans are in the same boat, according to a 2017 survey conducted by HomeServe USA, which found that 31% of respondents had less than $500 in savings, and 20% had no savings at all. 

broken piggy bank

Image Source: Getty Images.

Retirement planning can seem unimportant compared to immediate expenses, but you can't afford to waste time. Work up to your savings goal by splitting pay increases, bonuses, and other "extra" income into emergency liquid funds and long-term accounts. This strategy allows you to anticipate life's surprises while planning for the future. 

Avoid credit card debt

Depending how you use it, credit card debt is either a dirty word or a helpful tool. We harness ours for cash rewards and frequent flyer miles. And we don't carry balances from month to month, thereby avoiding the usurious interest rates charged on credit card balances.

We recently opened a credit card that deposits cash rewards directly into our Fidelity-managed retirement account. This kills two birds with one stone: Allowing a person to build their credit score while at the same time saving for retirement. 

man with credit card on the phone

Image Source: Getty Images.

Buy less house

Our suburban Seattle home wasn't much to look at in 2013, but the location and price were perfect. We paid well below the 28/36 rule, which measures how much mortgage you can afford based on gross monthly income, house-related expenses, and existing debts. 

The first part of the rule is the "front-end ratio," which says that you should spend no more than 28% of your gross monthly income on housing expenses -- monthly principal, interest, property taxes, insurance, and housing association fees. 

The second part of the rule is the "back-end ratio," which requires your total debt to equal 36% or less of your gross monthly income. In addition to housing, other debts considered on the back-end include auto loans, credit cards, student debt, and other personal loans with remaining payment periods of 10 months or more. Legal judgments and child support payments are also included. 

handing over house keys

image source: getty images.

Never pay full price

I once saved $3,300 on bedroom furniture just by asking the seller to beat an online sale for the same product. Get into the mindset of never paying full price no matter what the tag says. The uncertainty of the brick-and-mortar shopping industry has left retailers scrambling to retain customers, and you can usually find one that's willing to underprice the competition. Take advantage of market forces by securing discounts and putting the difference into savings. 

woman thinking about money

Image Source: Getty Images.

Lower your taxable income

One of the aggressive ways we save for retirement is by maxing out my husband's 401(k). Not only do we benefit from his employer's 50% matching on all contributions, we also lower our taxable income, which can save us (and you) tangible cash each year. 

Suppose your gross annual income is $92,000 and your top tax bracket is 28%. You can contribute up to $18,000 to your 401(k) each year, or $24,000 if you're over age 50. By doing so, you'll reduce your taxable income to $74,000 or $68,000, respectively, which lowers your top marginal tax rate to 25%.

The table below shows how much you'll save in federal income taxes by contributing nothing versus maxing out your 401(k) in a single year. 

Taxable Income401(k) ContributionsTop Federal Income Tax BracketTaxes Paid
$92,000 $0 28% $18,741.75
$74,000 $18,000 25% $14,238.75
$68,000 $24,000 25% $12,738.75


The difference is too big to ignore. Double down on your saving efforts by maxing out your 401(k) and reducing your taxable income in a single swoop. 

Buy investment property

It's tough to choose between retirement savings and other responsibilities like paying for a child's education. When money is tight, securing passive income through investment property can provide a lucrative solution. 

couple touring real estate investment

image source: getty images.

My family owns a condo in Chicago that generates passive income for our son's 529 college savings plan, allowing Mom and Dad to prioritize retirement simultaneously. Assuming we save $12,000 per year with a 6% return, little Mister will have nearly $325,000 earmarked for his education in 15 years. 

glass jars filled with money

Image Source: Getty Images.

A second or third household income is invaluable. Consider buying investment property in an area that boasts low property values while maintaining high rental prices (think college towns in the Midwest). With a little creativity, it's possible to reach all your financial goals.