How to plan for retirement

Retirement planning is a series of numbers working against compound interest and against your own inertia. Start at 25 and a 10% savings rate gets you there; start at 45 and you need 25% plus optimism. This guide walks through the target numbers (the 25x rule, the 4% rule), account priority order (401k match → Roth IRA → 401k → taxable), the contribution limits, and the common mistakes that cost real money over decades.

The target number — 25x annual spending

Rule of thumb: you need 25 times your expected annual retirement spending to retire. Spend $60k/year in retirement → need $1.5M. Spend $100k → $2.5M.

The 25x factor comes from the 4% rule: a diversified portfolio (60/40 stocks/bonds) can safely sustain ~4% annual withdrawals across a 30-year retirement without running out, assuming historical returns. 25 × 4% = 100% of annual spend.

Caveats: 4% is derived from US market history; low-yield environments and 40+ year retirements argue for 3.3-3.5% as safer. Early retirees often plan around 3.5% to buy insurance against sequence-of-returns risk.

The starting-age math

What percentage of income do you need to save? Varies by start age (assumes 7% real return, aims for 25x annual spend at 65):

Start at 25: ~10-12% of gross income.

Start at 30: ~15%.

Start at 35: ~20%.

Start at 40: ~25%.

Start at 45: ~35%.

Start at 50: ~45% — and you’ll likely retire later than 65, or accept a lower target.

The cost of starting 10 years later is roughly doubling the required savings rate. Compound growth is unforgiving.

Account priority order (US)

Most efficient order to allocate savings, for most people:

1. 401(k) up to employer match. Instant 50-100% return on the match portion. Never skip this unless your employer doesn’t match.

2. HSA (if on a high-deductible plan). Triple tax advantage: deductible contribution, tax-free growth, tax-free withdrawal for medical. If you can pay medical out of pocket and leave HSA to grow, it becomes the best retirement account you have access to.

3. Roth IRA (if eligible). $7,000 limit in 2026 ($8,000 if 50+). Tax-free growth and withdrawal. Income limits apply; backdoor Roth works if you exceed them.

4. 401(k) beyond the match. $23,500 limit in 2026 ($31,000 if 50+). Pre-tax reduces current tax bill.

5. Taxable brokerage. After maxing tax-advantaged space. Tax-efficient index funds, long-term capital gains rates.

Traditional vs Roth — which to use when

Traditional (pre-tax): you deduct now, pay income tax on withdrawals later. Better if your current tax bracket is higher than your expected retirement bracket.

Roth (after-tax): no deduction now, but withdrawals are tax-free. Better if your current bracket is lower than your expected retirement bracket, and for younger workers with decades of growth ahead.

General guidance: Roth in your 20s-30s and in early-career lower-income years; traditional in peak-earning years when deductions matter most; mix of both for tax-bracket flexibility in retirement.

Asset allocation — the glide path

Common rule: percentage in stocks = 110 − your age. At 30: 80% stocks / 20% bonds. At 60: 50% / 50%.

A target-date fund (e.g., Vanguard Target Retirement 2055) handles this automatically — it glides from aggressive to conservative as the year approaches. Fine choice for hands-off investors.

For self-managed: a 3-fund portfolio (US total market, international total market, US bonds) covers 99% of what you need. Expense ratios < 0.10% (Vanguard, Fidelity, Schwab index funds).

Avoid: individual stocks as core retirement savings, high-fee actively managed funds (1%+ expense ratio compounds to hundreds of thousands in lost wealth), target-date funds with fees above 0.20%.

Social Security — when to claim

US: you can claim as early as 62, at full retirement age (66-67 depending on birth year), or delay until 70.

Claiming at 62: ~30% reduction in monthly benefit vs FRA. Permanent.

Claiming at FRA: 100% of your calculated benefit.

Delaying to 70: ~32% higher monthly benefit than FRA (8% per year of delay).

Breakeven math favors delaying if you expect to live past the early-to-mid 80s. Delaying is insurance against longevity; taking early is better if you have health concerns or immediate need.

Healthcare before 65

Medicare starts at 65. Retire before that and you need a bridge: COBRA (expensive, 18 months max), ACA marketplace plans (subsidized based on income — retirees managing taxable income can qualify for substantial subsidies), or spouse’s plan.

Budget $10-20k/year per person for ACA premiums + out-of-pocket in early retirement if you’re not subsidy-eligible.

5 common retirement mistakes

1. Waiting to start. Starting at 35 instead of 25 roughly halves your final nest egg at the same savings rate.

2. Cashing out 401(k) when changing jobs.You pay income tax + 10% penalty, and lose decades of growth. Always roll into an IRA or the new employer’s 401(k).

3. Too-conservative allocation in 30s/40s.Being 60% bonds at 35 leaves enormous growth on the table. Young investors should be 80-100% stocks.

4. Ignoring fees. 1% annual fees cost ~28% of your wealth over 40 years. The difference between 0.04% (index fund) and 1% (actively managed) on $500k over 30 years is over $300k.

5. Not updating beneficiaries. Retirement accounts pass by beneficiary designation, not your will. A surprising number of accounts end up going to ex-spouses because the designation was never updated.

How to check if you’re on track

Fidelity benchmarks (as a multiple of current annual salary):

By 30: 1x salary saved.

By 40: 3x.

By 50: 6x.

By 60: 8x.

By 67: 10x.

Behind these numbers = increase savings rate, extend working years, or lower retirement spending target. Ahead = you have room to reduce saving rate, retire earlier, or upgrade lifestyle.

Run the numbers

Project your retirement savings trajectory with the retirement calculator. Pair with the compound interest calculator to see how starting 5 years earlier changes the outcome, and the net worth calculator for an all-accounts snapshot.