Retirement Planning Basics
Retirement planning involves setting goals, estimating future expenses, and building a savings strategy to fund those goals. The sooner you start, the more time your money has to compound and grow. Even small increases in monthly contributions can make a dramatic difference over decades.
The 4% Rule (Safe Withdrawal Rate)
A commonly used guideline is the "4% rule" — withdraw 4% of your retirement portfolio in year one, then adjust for inflation each year. This strategy is designed to make your money last 30+ years. To find your target nest egg, multiply your desired annual retirement income by 25.
Target Nest Egg = Annual Retirement Income × 25
Example: $60,000/year × 25 = $1,500,000
Example: $60,000/year × 25 = $1,500,000
Retirement Account Types
| Account | 2024 Contribution Limit | Tax Benefit |
|---|---|---|
| 401(k) | $23,000 ($30,500 if 50+) | Pre-tax contributions; tax-deferred growth |
| Roth IRA | $7,000 ($8,000 if 50+) | After-tax contributions; tax-free withdrawals |
| Traditional IRA | $7,000 ($8,000 if 50+) | Pre-tax (if eligible); tax-deferred growth |
| SEP-IRA (self-employed) | Up to $69,000 | Pre-tax; flexible contributions |
Retirement Milestones by Age
- Age 50: "Catch-up" contributions allowed for 401(k) and IRA
- Age 59½: Can withdraw from retirement accounts without 10% penalty
- Age 62: Earliest Social Security benefits (reduced amount)
- Age 65: Medicare eligibility begins
- Age 67: Full Social Security retirement age (for those born after 1960)
- Age 73: Required Minimum Distributions (RMDs) must begin