Definition of Retirement: Tips for How to Save, Plan, and Invest

What Is Retirement?

Retirement, fundamentally, is when you leave the workforce behind.

The traditional retirement age is 65 in the United States. The full retirement age (when you can collect full Social Security benefits) is 66 or 67 years old, depending on your birth year. The early retirement age is 62 (the earliest age you can collect Social Security benefits). Typically, 40% of pre-retirement income comes from Social Security for those who decide to retire early. If you delay collecting Social Security until age 70, you will receive the maximum benefit.

Key Takeaways

  • The retirement age has traditionally been age 65.
  • The Social Security Administration has been offering retirees monthly Social Security income benefits since 1935.
  • How much you'll need to save for retirement depends on your life expectancy and how much income you'll need to live comfortably.
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Understanding Retirement

How much Social Security you will receive depends on how much you paid into the system during your working years. This amount should be considered when calculating how much you will need to save for retirement. This, of course, depends on how long you'll expect to live in retirement, and how much annual income you'll need to live comfortably.

Since people are living longer than ever, many don't have adequate retirement savings needed to sustain themselves throughout their remaining years.

Saving for Retirement

When developing a retirement savings plan, it's important to determine how much income you'll need in retirement to comfortably live.

Expenses should be considered, such as whether there will be a mortgage or rent payment. and if so, how much. The three most frequently-used methods of saving for retirement are:

  • Employer-sponsored retirement plans, such as a 401(k)
  • Retirement savings, such as investments
  • Social Security retirement benefits


According to the 2019 Survey of Consumer Finances, the mean retirement savings of all working-age families is $269,600. Not surprisingly, many Americans work beyond the traditional retirement age, purely due to economic need.

Social Security benefits are reduced for those who decide to retire early. Benefits increase 8% every year you delay collecting benefits from age 62 to age 70.

Projecting Retirement Saving Needs

To project what you need to save, consider the following:

  • Your likely retirement age
  • The income needed to maintain your standard of living, based on current expenses, a targeted retirement age, and an estimated increase in the annual cost of living during retirement (inflation)
  • The current market value of your current savings and investments
  • A realistic projection of the real rate of return on your investments
  • An estimated value of your employer pension plan
  • The estimated value of your Social Security benefits
  • Whether you will retire in another state

When making retirement calculations, you should assume that inflation will erode the value of your investments, and you should adjust your savings plans accordingly. But generally speaking, the earlier you start the retirement saving process, the greater success you will enjoy.

Other keys to success include:

Are Americans Currently Living Longer Now Than in the Past?

According to the Special Committee on Aging by the U.S. Senate, advances in public health and medicine have allowed Americans to live and work longer. Those who are aged 55 and over are expected to make up nearly 25% of the workforce by 2026, which represents an increase from 35.7 million in 2016 to 42.1 million in 2026.

These changes may present opportunities for people to save longer, provided they remain healthy.

What Are a Few Retirement Savings Tips?

When it comes to saving for retirement, a disciplined plan of socking away even a small portion of savings each month can easily add up over time. Many brokerages offer no-minimum, no-fee retirement accounts that let individuals make automatic monthly deposits.

Furthermore, many employers offer 401(k) programs that automatically invest a portion of a worker's paycheck. The company may match part of those contributions, or make a nonelective contribution.

How Much Should I Save For Retirement?

Typically, retirees will need 80% of their pre-retirement income to continue their current standard of living. Calculate your current monthly expenses, and adjust it to 80% of that number.

The Bottom Line

Retirement is when you leave the workforce for good. So when you're getting closer to retirement, you should be do your best to prepare. Try to aggressively pay down debt, make maximum contributions to retirement accounts (including catch-up contributions), and assess your asset allocations in your portfolio. To ensure your money goes exactly where you want it to if you or your partner dies, talk to your financial advisor about your beneficiary designations. And remember, it's never too late to start saving for retirement. Those late to the game may need to work a little harder to catch up, but it can be done.

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. Investors should consider engaging a financial professional to determine a suitable retirement savings and investment strategy.

Article Sources
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  1. Social Security. "Retirement Benefits."

  2. Social Security Administration. "Life Expectancy for Social Security."

  3. USA.gov. "Retirement."

  4. Aging.Senate.gov. "America’s Aging Workforce: Opportunities and Challenges."

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