How much will you really need at retirement? That depends on life style choices that you make now, and will make then. But take a look at the big picture. When you retire the kids will be out of the house, so no child rearing expenses. If you’ve handled your money wisely the house will be paid for, so no mortgage payment. Hopefully you’ll be current on house maintenance and not have leaky roofs to fix or anything like that. With luck your cost of living will be much lower than it is right now, so you don’t have to have the full income you have right now. However, traveling is nice when you’re retired and when you have extra time on your hands leisure activities can take on new enjoyment, so don’t retire with too little money. If you can hand an income equal to or close to what you have now, you’ll have a great retirement free of money worries.
How to get there is the next question. Where should you start to build up retirement savings? If your employer offers a 401(k) plan and makes matching contributions to it, that’s a great place to start. Most employers have a limit to their matching. Max that out, and then go no further. Add a Roth IRA to your plan, contributing the maximum allowed. This is after tax money that is never taxed again. The earnings on a Roth are tax free, while the 401(k) money is tax deferred. Try to have both the Roth IRA money and the 401(k) in aggressive growth mutual funds that perform well over the long haul. If you have more than five years to go before retirement then bank accounts and certificates of deposit are the wrong place to have your money. Be aggressive with your money over the long haul, but by being diversified have overall safety.
If you have more money to be invested there are many options available. Many people like real estate investments, which are active investments in that you have to manage the properties, or hire a manager. If you have just a few rental properties, preferably one or two small apartment buildings or a few duplexes or triplexes then you are earning several ways: profit on the rents you collect now, tax savings on the properties now, improvements you make to the properties will increase their value, and the natural rise in property values in most areas will increase your value. When it comes time to retire the properties should be paid off. With no mortgage, if you don’t mind doing some occasional maintenance yourself you’ll have nice paychecks when it comes time to collect the rent every month. If you’d rather not bother with that, then sell the properties and get some cash to put in the bank. Consider partial owner financing for the tax advantages that gives and you’ll come out great.