Saving for retirement can be tricky, but using tools to make automatic and regular transfers can make the process easier.

Transfering a set amount of money once or twice a month from your checking account into a 401(k) plan or Individual Retirement Account (IRA) simplifies the task and will result in more disciplined saving habits. 

“Automate the savings through payroll deduction into your workplace plan and automatic draft from your bank account into an IRA,” says Greg McBride, chief financial analyst of Bankrate, a New York-based financial data company.

How much money you need to retire

Figuring out how much money you will need in the future when you’re just starting out in your career can be challenging since you don’t know what kind of lifestyle you want, such as whether you want to own a home or where you will end up living.

“If you’re in your 20s, 30s, or 40s, don’t waste your time trying to figure out how much you need to save for retirement, he says. “You’re not going to successfully pin down the expenses, lifestyle, and cost-of-living you’ll have 30, 40, or 50 years from now and the rate of inflation between now and then.”

Instead of determining the total amount, focus on saving a good chunk of your salary and aim for saving 10% to 15% of your income for retirement “by investing for the long haul in a well-diversified, equity-heavy portfolio and minimizing investment costs,” McBride advises.

Read More: Why a 60/30/10 Budget Could Be the New 50/30/20

Other experts such as Henry Yoshida, CEO of Rocket Dollar, an Austin, Texas-based self-directed individual retirement account provider, recommend saving up to 20% of your earnings.

“It’s more important that individuals understand the need to save a portion of their earnings in tax efficient retirement accounts to accumulate a nest egg,” he said. “If you haven’t started doing this yet, just start with any percentage you can, even 1% and gradually increase this over time to the target 10% to 20%.”

What a 401(k) does for retirement

One way to ramp up your retirement savings is to contribute to a workplace retirement savings plan like a 401(k). This enables you to save on a tax-advantaged basis via a payroll deduction with your employer kicking in some money too, McBride says. “You essentially have both your employer and the government helping you save for retirement and it happens before you roll out of bed on payday morning.”

Some employers will match what you sock away in a 401(k) plan up to a certain percentage—such as 3%.. 

A rule of thumb to follow is to save up to the maximum employer match, then contribute to the upper limit for a Roth IRA, Yoshida says.

Read More: How to Reset Your Thinking Around Spending Money, According to Experts

The contributions you make to a 401(k) plan are beneficial because they allow you to invest pre-tax dollars, which reduces your current income tax bill and allows you to save more money, says Robert Johnson, a professor at Heider College of Business, Creighton University.

Another advantage is that the money saved in a 401(k) plan grows tax free. 

“You benefit from compounding within the plan and pay no taxes on the increase in value while the funds are in the plan,” he says. 

When to withdraw from your 401(k)

Taking withdrawals from a 401(k) plan should be delayed until you reach retirement age—the IRS deems that to be 59.5 years or older. Otherwise, Uncle Sam penalizes you for using the money too early, since it was set up for you to use once you retire.

“Resist the urge to use your retirement savings as a piggy bank for unplanned expenses or in the event of a job loss—the taxes and penalties mean you may only get 55 to 80 cents in hand for every dollar withdrawn,” McBride says. “Even in situations where you’re permitted to make withdrawals without penalty, such as taking money from your IRA for the downpayment on your first home, doesn’t mean you should. Early withdrawals are a permanent setback to your retirement planning by robbing yourself of valuable compounding.”

The money socked away in a 401(k) plan or IRA is a nest egg for your retirement and is not a rainy day fund, Johnson adds. Dipping into it too early could leave you at risk when you really need it.

“Too often people view their 401(k) or IRA as a fund that can be accessed prior to retirement for emergencies,” he says. “They rationalize that it is ‘my money’ and either make an early withdrawal from the account or borrow against the balance. When it comes time to retire and you haven’t amassed enough money in your retirement accounts you are effectively out of options other than working longer or lowering your lifestyle.”

Why you should have an IRA 

As job hopping becomes more commonplace, Millennials and Gen Zers should roll over their 401(k) plans into an IRA to consolidate and lower the expenses they pay for their retirement plans, since each plan charges a fee. At least 22% of workers told Pew Research in 2022 that they are likely to start looking for a different job during the next six months. 

An IRA also allows you to save more money for the future, especially if you already max out your 401(k) contribution of $23,000 in 2024. The contribution limit in 2024 for an IRA is $7,000 for people who are 50 and younger.

“An IRA is a great way to supplement your workplace retirement savings with money you completely control,” says McBride.  “When leaving an employer, it is often a good idea to roll your previous employer’s 401(k) into another tax-advantaged retirement plan like an IRA, especially if your new employer’s plan isn’t an option.”

Younger workers should only contribute up to the match limit from an employer in a 401(k) plan, Yoshida says. That’s because some of these 401(k) plans have high fees for maintaining the account and the expense ratios for mutual funds are also costly.

Read More: Why We’re Spending So Much Money

“After this you should invest in low cost, broad market index funds in a Roth IRA,” he says. “Doing both of these will get the majority of Americans to the critical 10% to 20% savings number.”

IRAs provide additional tax advantages, either tax-deferred growth for traditional IRAs or tax-free withdrawals for Roth IRAs, says Daren Blonski, co-founder and managing principal of Sonoma Wealth Advisors in California.

“This tax flexibility can be advantageous in retirement planning, particularly if you anticipate changes in your tax bracket over time,” he says. “Additionally, IRAs offer a broader range of investment options compared to many employer-sponsored 401(k) plans, empowering you to customize your investment strategy to align with your specific financial goals and risk tolerance.”