Many workers assume that their living costs will go down once they retire. But recent data confirms that a large number of retirees wind up spending more in retirement, not less. According to the Employee Benefit Research Institute, one-third of senior households spend more money during their first six years of retirement than they did at the end of their working years.

While it's true that certain expenses, like commuting, do go down in retirement, other costs, like healthcare and leisure, are likely to climb. The former is due in part to the switch from private insurance to Medicare, which doesn't always offer the same level of coverage, and that health issues tend to creep up as we age. The latter, meanwhile, stems from the need for seniors to occupy their newfound free time.

Retirement piggy bank


What all of this means for you is that you'll need a fair sum of money to stay afloat financially in retirement. So if you're wondering how much to save in your IRA, the answer is: as much as you can.

Max out those annual limits

Traditional and Roth IRAs have one major disadvantage compared to 401(k) plans -- their annual contribution limits are significantly lower. Current workers under 50 with a 401(k) plan can contribute up to $18,000 a year in tax-free dollars, and if you're over 50, you get a $6,000 catch-up for a total of $24,000. With either type of IRA, workers under 50 are only allowed to contribute up to $5,500 a year, and while workers 50 and over get a $1,000 catch-up, that still only brings the limit up to $6,500.

If you don't have access to a 401(k) and your sole retirement savings plan is your IRA, you should push yourself to hit those yearly limits. Though $5,500 (or even $6,500) a year may not seem like it'll get you very far in retirement, if you start early enough and invest that money wisely, you could grow a series of modest contributions into a rather impressive sum.

How much income will your IRA provide?

If you're relying on an IRA for retirement income, the amount you ultimately accrue will depend on two key factors: how old you are when you first start saving, and how you invest your money. Let's start with the first. Thanks to the power of compounding, the more time you give your money to grow, the more wealth you stand to amass. IRAs offer the benefit of tax-deferred growth (or, in the case of Roth accounts, tax-free growth), which means that as your investments make money year over year, you don't have to pay a portion of your gains to the IRS. Rather, that money can get reinvested so that it grows into an even larger sum.

The following table shows how much you stand to accumulate if you start maxing out your IRA contributions at various ages:

If You Start Maxing Out Your IRA at Age:

Here's What You'll Have by Age 65 (Assumes an Average Annual 8% Return):


$1.425 million










What these numbers show us is that contributing to a retirement account at an early age can result in a sizable nest egg even if you're limited to an IRA as your sole savings vehicle. Keep in mind that the above calculations assume steady annual contributions of $5,500, the limit for workers under 50. If you were to contribute an extra $1,000 a year starting at age 50, you'd accumulate even more.

Another key item to note is that the above calculations assume an average annual 8% return, which is feasible for a stock-heavy portfolio. Now not everybody is comfortable with stocks, and they're unquestionably more volatile than bonds. But if you limit yourself to safer investments, you won't see the same performance out of your money.

The following table shows what an annual $5,500 IRA contribution will grow to over a 40-year period based on various returns ranging from conservative to aggressive:

Average Yearly Return

Total Accumulated Over 40 Years (Assumes $5,500 Annual Investment

2% (Conservative)


4% (Moderate)


6% (Moderately aggressive)


8% (Aggressive)

$1.425 million


Note the difference between an aggressive investment strategy and one that's only moderately so. After 40 years, you'll be sitting on an extra $574,000 by braving the stock market's ups and downs. So you see, planning for retirement isn't just about how much you save; it's also about what you do with that money.

Finding ways to save

While strong savers may feel limited by the annual contribution limits imposed by IRAs, others might struggle to come up with even a fraction of that amount on a yearly basis. If you have a hard time saving, then making changes early on can open to the doors to consistent contributions, which you'll need if you want a chance at retiring on time and in a reasonably comfortable fashion.

You can start by making small lifestyle tweaks, like cutting back on restaurant meals and non-essential clothing and electronics purchases. If that doesn't do the trick, you'll need to think bigger, which could mean downsizing your living space, giving up your vehicle, or working a second job to generate extra income. No matter what steps you take to ramp up your savings, the key is to do so as early as possible so you can maximize that tax-deferred growth we talked about earlier.

Because we all have different needs, there's really no ideal sum you should aim for in your IRA. Rather, you should strive to max out your annual IRA contributions and invest them in a manner that produces significant growth. If you don't have a retirement plan in place already, visit our IRA center to explore your options.

The Motley Fool has a disclosure policy.