Planning for Retirement
Retirement planning isn't just about saving money — it's about ensuring you can maintain your lifestyle when you stop working. The earlier you start, the more time your money has to grow through compound interest.
The Power of Starting Early
| Early Emily | Late Larry | |
|---|---|---|
| Starts at | Age 25 | Age 35 |
| Saves monthly | $300 | $600 |
| Years saving | 40 | 30 |
| Total contributed | $144,000 | $216,000 |
| Final balance (7%) | $745,000 | $680,000 |
Time is Money
How Much Do You Need?
- Replace 70-80% of pre-retirement income
- Have 25x your annual expenses saved (4% rule)
- Account for inflation reducing purchasing power
- Plan for 20-30 years of retirement
The 4% Rule Explained
The 4% rule states you can withdraw 4% of your savings in year one, then adjust for inflation each year, with a high probability of not running out of money over 30 years.
Annual Withdrawal = Savings × 4%
Safe withdrawal rate guideline
Example
Important Caveats
Types of Retirement Accounts
401(k) / 403(b)
- Employer-sponsored plans
- Pre-tax (Traditional) or after-tax (Roth) contributions
- 2024 limit: $23,000 ($30,500 if 50+)
- Often includes employer matching
- 10% penalty for withdrawals before 59½
Traditional IRA
- Individual account, not tied to employer
- Tax-deductible contributions (income limits apply)
- 2024 limit: $7,000 ($8,000 if 50+)
- Taxes paid on withdrawals
- Required Minimum Distributions at 73
Roth IRA
- After-tax contributions, tax-free growth
- Same limits as Traditional IRA
- Income limits: $161,000 single, $240,000 married
- No RMDs during owner's lifetime
- Withdraw contributions anytime penalty-free
Employer Match: Free Money
If your employer offers a 401(k) match, always contribute enough to get the full match. It's literally free money.
| Common Match | Example (You Earn $75K) |
|---|---|
| 100% up to 3% | You: $2,250 → Employer: $2,250 |
| 50% up to 6% | You: $4,500 → Employer: $2,250 |
| Dollar-for-dollar up to 4% | You: $3,000 → Employer: $3,000 |
Never Leave Free Money
Asset Allocation by Age
Your investment mix should become more conservative as you approach retirement.
| Age | Stocks | Bonds | Cash |
|---|---|---|---|
| 30s | 80-90% | 10-20% | 0-5% |
| 40s | 70-80% | 20-30% | 0-5% |
| 50s | 60-70% | 30-40% | 0-5% |
| 60s | 50-60% | 35-45% | 5-10% |
| 70+ | 40-50% | 40-50% | 10-20% |
Rule of Thumb
Social Security Benefits
Social Security replaces about 40% of pre-retirement income for average earners.
| Claiming Age | Benefit Impact |
|---|---|
| 62 (early) | ~30% reduction |
| 66-67 (full retirement) | 100% benefit |
| 70 (delayed) | ~32% increase |
Delay If Possible
Common Retirement Mistakes
- Starting too late — Every decade you delay costs significantly
- Not taking the employer match — Free money left on the table
- Cashing out when changing jobs — Taxes + 10% penalty + lost growth
- Underestimating expenses — Many retirees spend more early on
- Ignoring inflation — $50,000/year today = $90,000+ in 25 years
- Claiming Social Security too early — Unless absolutely necessary
Frequently Asked Questions
Q: How much should I save for retirement?
A: Aim for 15-20% of gross income including employer match. Start lower if needed — even 10% helps.
Q: Should I pay off debt or save for retirement?
A: Get the employer match first, then pay high-interest debt (credit cards), then maximize retirement.
Q: Traditional or Roth 401(k)?
A: Expect higher taxes in retirement? Choose Roth. Lower taxes? Traditional. Unsure? Split between both.
Q: Can I retire early?
A: Yes! You'll need to save more and bridge the gap before 59½. Research the 'Rule of 55' and Roth conversion ladder.
Q: What if I haven't saved enough?
A: Work longer, reduce expenses, delay Social Security, consider part-time work, or explore catch-up contributions.
This calculator provides estimates for educational purposes. Actual results depend on market performance, inflation, and personal circumstances. Consider consulting a certified financial planner.