Here Are the Magnificent Seven Retirement Saving Rules to Know

It's important to learn how to build a comfortable and financially secure future for yourself, but the more you read about it, the more you may end up overwhelmed by lots of recommendations. The more of them you act on, the better your retirement may be, but do try to focus on the most important ones.

Here are the magnificent seven retirement rules to know about -- and, ideally, to act on.

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1. Save 10% or more of your income

First, you need to be saving and investing for your future -- ideally even if you're only in your 20s. After all, your earliest invested dollars are your most powerful, as they will have the longest time in which to grow for you. Many experts have suggested saving 10% of your income, but for lots of people, that's far too little, especially if you're late to the saving-and-investing party. Saving 15% or more might be right for you -- it all depends on how much you need in retirement.

2. Have much of your nest egg in stocks

The stock market is one of the best ways to build wealth over the long run, and just because you're in or near retirement doesn't mean you should shed all your stocks. Remember that if you retire at, say, 65 and live to 95, some of your dollars may still have 30 years in which to grow.

One rule of thumb for knowing how much to keep in stocks is to take 110 and subtract your age from it. So if you're 50, you'd subtract 50 from 110, getting 60, meaning you'd aim to have 60% of your portfolio in stocks. It all depends on your risk tolerance and financial circumstances, though. For many people, a 60% stock allocation may seem way too low at age 50, when you may still be 15 years from retiring. (This rule actually used to be more conservative, having you subtract from 100.)

3. Factor healthcare costs into your planning

When you're planning for retirement (as we all should do), don't forget to plan for healthcare costs -- because they're likely to be substantial. The folks at Fidelity, for example, have estimated that "...a single person age 65 in 2023 may need approximately $157,500 saved (after tax) to cover healthcare expenses in retirement. An average retired couple age 65 in 2023 may need approximately $315,000 saved."

If you can get or stay fit, exercising regularly and eating nutritiously, you may end up spending less -- and perhaps you'll just be lucky. But those hefty figures above are averages -- meaning that lots of people will end up spending even more.

4. Make the most of retirement accounts

Be sure to make use of tax-advantaged retirement accounts available to you -- such as IRAs and/or 401(k)s, both of which are generally available in traditional and Roth forms.

With traditional accounts, you get an upfront tax break: The amount you contribute for a certain tax year can be deducted from your taxable income for that year. Earn $80,000 and contribute $7,000? Your taxable earnings shrink by $7,000, shrinking your tax bill. With Roth accounts, you contribute post-tax dollars and enjoy a back-end tax break: If you follow the rules, you can take withdrawals tax-free!

401(k) accounts have more limited investment options, but much higher contribution limits. For 2023, the IRA contribution limit is $6,500. The deadline for 2023 contributions hasn't come yet -- it's April 15, 2024. (Those aged 50 or older can contribute $7,500.) For the 2024 tax year, the IRA limit rises to $7,000 -- and $8,000 for those 50 and older. For 401(k) accounts, meanwhile, the 2024 contribution limit is $23,000 (up from $22,500 for 2023), plus an additional $7,500 "catch-up" contribution for those 50 or older.

If your employer offers matching contributions for 401(k) accounts, be sure to contribute at least enough to max that out -- as it's free money.

5. Know that index funds can be all you need

Saving a lot for retirement isn't enough on its own. You also need to be investing effectively. Stocks are great, but if you don't really know what you're doing, you can lose a lot in stocks. So plan to take the time to learn a lot about stocks -- or take a much easier (yet still powerful) path, opting for simple, low-fee, broad-market index funds, such as ones that track the S&P 500.

A good index fund can really be all you need to save effectively for retirement. Consider that over long periods, the stock market has averaged annual returns near 10%. You may not do quite that well over your investing period, though. The table below shows what you might amass if you average 8%:

Source: Calculations by author.

6. Have a withdrawal strategy

You'll be in great shape if you amass a hefty nest egg by retirement, but then you need to have an effective withdrawal strategy, so that you don't end up spending too much of it too soon. There are many retirement withdrawal strategies, such as the famous 4% rule, so read up on them and see what will make the most sense for you.

The 4% rule, by the way, suggests withdrawing 4% of your nest egg in your first retirement year and then adjusting future annual withdrawals for inflation. That might work well, but much will depend on how much of your portfolio is in stocks versus bonds and on the state of the stock market as you enter retirement. If it has just crashed, taking 4% may be too much.

7. Have a Social Security strategy, too

Finally, have a Social Security plan -- and if you're married, have a coordinated plan. That's because you can start collecting your benefits between ages 62 and 70, with those benefits being much bigger if you delay and much smaller if you start early. (You'll collect many more checks if you start early, though, and that can be a smart move for some folks.) Give a lot of thought to when to start Social Security.

Following at least some of these rules can lead to a better retirement, and following all of them can lead to a lot of future financial security.