Retirement planning can feel overwhelming, but it doesn't have to be. At its core, retirement planning answers two questions: How much do I need? And how do I get there?
Whether you're 25 or 55, the principles are the same. The sooner you start, the easier it is—but it's never too late to begin.
How Much Will You Need?
The first step is estimating your retirement "number"—the amount you'll need saved to fund your retirement lifestyle.
The 70-80% Rule
A common guideline: plan for 70-80% of your pre-retirement income annually in retirement. Some expenses decrease (commuting, work clothes), while others may increase (healthcare, travel).
The 4% Rule
The 4% rule provides a simple way to calculate your target nest egg:
Annual Retirement Expenses × 25 = Target Nest Egg
This rule assumes you can withdraw 4% of your portfolio annually (adjusting for inflation) with a high probability of not running out of money over 30 years.
| Desired Annual Income | Target Nest Egg |
|---|---|
| $40,000 | $1,000,000 |
| $50,000 | $1,250,000 |
| $60,000 | $1,500,000 |
| $80,000 | $2,000,000 |
| $100,000 | $2,500,000 |
Important Caveats
- The 4% rule is a guideline, not a guarantee
- It assumes a diversified portfolio of stocks and bonds
- Some financial planners now suggest 3-3.5% for added safety
- Social Security and pensions reduce the amount you need from savings
💡 Pro Tip: Don't forget to account for Social Security. If you expect $2,000/month ($24,000/year) from Social Security, that's $24,000 less you need from your portfolio annually—reducing your required nest egg by $600,000.
Retirement Account Types
Understanding your account options helps you maximize tax advantages and employer benefits.
Employer-Sponsored Accounts
| Account | Who Can Use | Key Features |
|---|---|---|
| 401(k) | Private sector employees | Pre-tax or Roth, employer match, high limits |
| 403(b) | Nonprofit, education, government | Similar to 401(k), may have different funds |
| 457(b) | State/local government | No early withdrawal penalty, separate limits |
| TSP | Federal employees, military | Very low fees, similar to 401(k) |
Individual Retirement Accounts (IRAs)
| Account | Tax Treatment | 2025 Limit | Income Limits |
|---|---|---|---|
| Traditional IRA | Deductible contributions, taxed at withdrawal | $7,000 ($8,000 if 50+) | Deduction may be limited if you have a workplace plan |
| Roth IRA | After-tax contributions, tax-free withdrawal | $7,000 ($8,000 if 50+) | Single: $150,000; Married: $236,000 |
| SEP-IRA | Self-employed, deductible contributions | Up to $69,000 | None |
| Solo 401(k) | Self-employed, Traditional or Roth | Up to $69,000 + employee contribution | None |
Health Savings Account (HSA)
If eligible, an HSA offers triple tax advantages:
- Tax-deductible contributions
- Tax-free growth
- Tax-free withdrawals for qualified medical expenses
After 65, you can withdraw for any purpose (taxed like Traditional IRA).
📌 Key Takeaway: The HSA is the only account type with a triple tax advantage. If you have a high-deductible health plan, prioritize this account.
The Savings Priority Order
With limited money, prioritize accounts in this order:
Priority 1: Emergency Fund
Before investing, save 3-6 months of expenses in accessible savings. This prevents you from raiding retirement accounts during emergencies.
Priority 2: 401(k) Up to Employer Match
If your employer matches 401(k) contributions, contribute at least enough to get the full match. This is an instant 50-100% return on your money.
Example: If your employer matches 50% up to 6% of salary, contribute at least 6% to capture the full 3% match.
Priority 3: High-Interest Debt
Pay off credit cards, payday loans, or any debt above 7-8% interest. This guaranteed "return" often beats expected investment returns.
Priority 4: HSA (If Eligible)
Max out your HSA before other accounts. The triple tax advantage is unbeatable.
Priority 5: Roth IRA
If eligible, max out your Roth IRA ($7,000 in 2025). Tax-free growth and withdrawals provide valuable flexibility.
Priority 6: Max Out 401(k)
After the Roth IRA, increase 401(k) contributions toward the $23,500 limit (2025).
Priority 7: Taxable Brokerage
After maxing tax-advantaged accounts, invest in a regular brokerage account. No tax benefits, but no restrictions either.
How Much Should You Save?
Savings Rate Targets
| Age Started | Target Savings Rate |
|---|---|
| 20s | 10-15% of income |
| 30s | 15-20% of income |
| 40s | 20-25% of income |
| 50s | 25-30% of income (plus catch-up contributions) |
These percentages include employer match.
Savings Milestones by Age
Fidelity suggests these benchmarks:
| Age | Target Savings |
|---|---|
| 30 | 1× annual salary |
| 35 | 2× annual salary |
| 40 | 3× annual salary |
| 45 | 4× annual salary |
| 50 | 6× annual salary |
| 55 | 7× annual salary |
| 60 | 8× annual salary |
| 67 | 10× annual salary |
Don't panic if you're behind—these are targets, not requirements. Focus on increasing your savings rate going forward.
💡 Pro Tip: Every time you get a raise, increase your savings rate by at least half the raise. You'll boost savings without feeling a lifestyle pinch.
Investment Strategy by Age
Your investment allocation should shift as you approach retirement.
Age-Based Guidelines
| Age | Stocks | Bonds |
|---|---|---|
| 20s | 90% | 10% |
| 30s | 80% | 20% |
| 40s | 70% | 30% |
| 50s | 60% | 40% |
| 60s | 50% | 50% |
| 70+ | 40% | 60% |
These are general guidelines—your situation may differ based on risk tolerance, other income sources, and goals.
The Simple Approach: Target-Date Funds
Target-date funds automatically adjust your allocation as you age. Just pick the fund closest to your expected retirement year (e.g., "Target 2055") and invest everything there.
📌 Key Takeaway: Don't let investment complexity delay you. A single target-date fund is a perfectly good retirement portfolio.
Retirement Planning by Life Stage
In Your 20s-30s
Focus: Building habits
- Start contributing immediately—even small amounts
- Get the full employer match
- Prioritize Roth accounts (you're in a low tax bracket)
- Be aggressive with stock allocation
- Ignore short-term market fluctuations
In Your 40s
Focus: Accelerating savings
- You're in your peak earning years—maximize contributions
- Catch up if you're behind on milestones
- Begin thinking about retirement lifestyle goals
- Consider whether you're on track with a retirement calculator
In Your 50s
Focus: Catch-up contributions and planning
- Take advantage of catch-up contributions ($7,500 extra in 401k, $1,000 extra in IRA)
- Estimate Social Security benefits
- Begin shifting toward more conservative investments
- Consider healthcare costs and Medicare timing
In Your 60s
Focus: Transition planning
- Finalize retirement budget and income sources
- Decide Social Security claiming strategy
- Plan the first few years of retirement withdrawals
- Consider healthcare coverage until Medicare at 65
Common Retirement Planning Mistakes
1. Not Starting Early Enough
Every year you delay costs you significantly in compound growth. Starting at 25 vs. 35 can mean hundreds of thousands more at retirement.
2. Not Getting the Full Employer Match
This is free money. Not getting the match is leaving part of your salary on the table.
3. Cashing Out When Changing Jobs
Rolling a 401(k) to an IRA preserves your savings. Cashing out triggers taxes, penalties, and destroys decades of growth.
4. Being Too Conservative When Young
With 30+ years until retirement, young investors can weather market volatility. Being too conservative sacrifices growth.
5. Ignoring Fees
A 1% annual fee difference can cost hundreds of thousands over a career. Choose low-cost index funds.
6. Not Planning for Healthcare
Healthcare costs in retirement average $300,000+ for a couple. Factor this into your planning.
7. Underestimating Longevity
Plan for a 30-year retirement. Running out of money at 85 is worse than having too much.
Your Retirement Planning Action Plan
Step 1: Calculate Your Number
- Estimate annual retirement expenses
- Multiply by 25 (using 4% rule)
- Subtract expected Social Security (estimate at ssa.gov)
Step 2: Assess Where You Are
- Total current retirement savings
- Current savings rate
- Years until planned retirement
Step 3: Close the Gap
- Determine required savings rate to reach your goal
- Identify which accounts to prioritize
- Set up automatic contributions
Step 4: Choose Your Investments
- Select a target-date fund, or
- Build a simple portfolio of index funds
- Ensure low fees (under 0.3% expense ratio)
Step 5: Monitor and Adjust
- Review progress annually
- Increase contributions when income rises
- Rebalance portfolio if needed
- Adjust plans as life circumstances change
Retirement planning isn't about perfection—it's about progress. Start where you are, save what you can, and keep improving.