About Retirement Planning
Retirement planning is one of the most important financial decisions you'll make.
This calculator helps you understand how much you need to save, how to reach your
goals, and how to manage your money during retirement.
Common Retirement Rules of Thumb
The 10% Rule
Save 10-15% of your pre-tax income per year during your working years. Starting at
age 25 with 10% savings can build a $1 million nest egg by retirement.
The 80% Rule
Plan for 70-80% of your pre-retirement income in retirement to maintain your
standard of living. Some may need more for travel and activities, others less with
reduced expenses.
The 4% Rule
The 4% Rule: Withdraw 4% of your retirement savings in the first
year, then adjust for inflation annually. This strategy historically lasts 30+
years.
Example:
Retirement Savings: $1,000,000
First Year Withdrawal: $40,000
With 2.5% inflation, Year 2: $41,000
This approach balances income with portfolio longevity.
The 25x Rule
Save 25 times your expected annual retirement expenses. If you need $50,000/year,
you need $1.25 million saved. This is related to the 4% withdrawal rule (1/25 = 4%).
Retirement Savings by Age
| Age |
Recommended Savings |
Example ($75K Salary) |
| 30 |
1x annual salary |
$75,000 |
| 40 |
3x annual salary |
$225,000 |
| 50 |
6x annual salary |
$450,000 |
| 60 |
8x annual salary |
$600,000 |
| 67 |
10x annual salary |
$750,000 |
Sources of Retirement Income
Social Security
Social Security replaces about 40% of pre-retirement income for average workers.
Benefits depend on your earnings history and when you start collecting:
- Age 62: Reduced benefits (up to 30% less)
- Full Retirement Age (66-67): 100% of benefits
- Age 70: Maximum benefits (up to 32% more)
401(k) and 403(b) Plans
Employer-sponsored retirement plans with tax advantages. Many employers match
contributions up to a certain percentage.
Employer Match Example:
Salary: $60,000
Employer matches 50% up to 6% of salary
You contribute: $3,600 (6%)
Employer adds: $1,800 (50% of your 6%)
Total: $5,400/year = Free $1,800!
Always contribute enough to get the full match - it's free money!
Individual Retirement Accounts (IRA)
| Feature |
Traditional IRA |
Roth IRA |
| Contributions |
Pre-tax (tax deductible) |
After-tax |
| Tax on Withdrawals |
Taxed as income |
Tax-free |
| Age Limit |
No age limit (after 2020) |
No age limit |
| Required Distributions |
Yes, starting at 73 |
No RMDs |
| 2024 Contribution Limit |
$7,000 ($8,000 if 50+) |
$7,000 ($8,000 if 50+) |
Pension Plans
Defined benefit plans that provide fixed monthly payments for life. More common in
public sector jobs. Private sector pensions are increasingly rare.
Impact of Inflation on Retirement
Inflation erodes purchasing power over time. At 2.5% average inflation, $100,000
today will only have the purchasing power of:
- 10 years: $78,120
- 20 years: $61,027
- 30 years: $47,674
This is why it's critical to factor inflation into retirement planning and ensure
your investments outpace inflation.
Investment Returns in Retirement
| Investment Mix |
Expected Return |
Risk Level |
Best For |
| 100% Stocks |
8-10% |
High |
20+ years to retirement |
| 80% Stocks / 20% Bonds |
7-9% |
Medium-High |
10-20 years to retirement |
| 60% Stocks / 40% Bonds |
6-7% |
Medium |
5-10 years to retirement |
| 40% Stocks / 60% Bonds |
5-6% |
Low-Medium |
In retirement (early) |
| 20% Stocks / 80% Bonds |
4-5% |
Low |
In retirement (later) |
Retirement Strategies by Age
In Your 20s and 30s
- Start saving immediately - time is your biggest advantage
- Contribute at least enough to get employer match
- Invest aggressively (80-100% stocks)
- Open a Roth IRA for tax-free growth
- Increase contributions with salary raises
In Your 40s and 50s
- Maximize retirement contributions
- Catch-up contributions if over 50 ($7,500 extra for 401k, $1,000 for IRA)
- Begin shifting to more conservative investments
- Pay off high-interest debt
- Review and adjust retirement goals
In Your 60s and Beyond
- Decide when to claim Social Security
- Shift to more bonds/fixed income (40-60%)
- Create a withdrawal strategy
- Consider healthcare costs and Medicare
- Plan for required minimum distributions (RMDs)
Common Retirement Mistakes to Avoid
- Starting too late: Even 5 years earlier makes a huge difference
- Not maximizing employer match: You're leaving free money on the
table
- Cashing out 401(k) when changing jobs: Keep it invested or roll
it over
- Underestimating healthcare costs: Average couple needs $315,000
for medical expenses
- Ignoring inflation: Your expenses will increase over time
- Taking Social Security too early: Waiting can increase lifetime
benefits
- Not having a withdrawal strategy: Taxes matter in retirement
too
- Paying high investment fees: Even 1% in fees can cost hundreds
of thousands
Healthcare in Retirement
Healthcare is often the biggest expense in retirement:
- Medicare: Starts at age 65, covers most medical expenses
- Part A: Hospital insurance (usually free)
- Part B: Medical insurance (~$175/month in 2024)
- Part D: Prescription drug coverage (varies)
- Medigap: Supplemental insurance to cover gaps
- Long-term care: Not covered by Medicare, consider separate
insurance
Required Minimum Distributions (RMDs)
Traditional IRAs and 401(k)s require minimum withdrawals starting at age 73:
RMD Calculation Example:
Age 73 with $500,000 in IRA
Distribution Period: 26.5 years
RMD: $500,000 ÷ 26.5 = $18,868
This amount is taxed as ordinary income. Plan for the tax impact!
Retirement Withdrawal Strategies
The Bucket Strategy
- Bucket 1 (Years 1-2): Cash/savings for immediate needs
- Bucket 2 (Years 3-10): Bonds and conservative investments
- Bucket 3 (Years 10+): Stocks for growth
Tax-Efficient Withdrawal Order
- Taxable accounts first (capital gains rates)
- Tax-deferred accounts next (traditional IRA/401k)
- Tax-free accounts last (Roth IRA) - let them grow
Estate Planning Considerations
- Update beneficiaries on all accounts regularly
- Create or update your will
- Consider a living trust to avoid probate
- Plan for estate taxes if applicable
- Discuss inheritance plans with family
- Have advance healthcare directives
Maximizing Social Security Benefits
| Strategy |
Description |
Best For |
| Delay Until 70 |
Get 132% of full benefit |
Good health, longevity in family |
| Coordinate with Spouse |
One claims early, one delays |
Married couples with income gap |
| Continue Working |
Increases benefit calculation |
Low earners, gaps in work history |
| File and Suspend |
Spouse claims, you delay |
Limited options post-2016 |
Calculating Your Retirement Number
Step-by-Step Example:
1. Current income: $80,000
2. Retirement income needed (80%): $64,000
3. Social Security estimate: $24,000
4. Income gap: $40,000
5. Using 4% rule: $40,000 ÷ 0.04 = $1,000,000
You need $1 million saved to retire comfortably!
Tips for Catching Up on Retirement Savings
- Use catch-up contributions if you're 50 or older
- Reduce expenses and redirect savings to retirement
- Consider working a few extra years
- Take on a side hustle and invest that income
- Maximize tax-advantaged accounts first
- Review and reduce investment fees
- Don't panic - something is better than nothing
Retirement Budget Categories
Plan for these expense categories in retirement:
- Essential Expenses (50-60%): Housing, food, healthcare,
insurance
- Discretionary (20-30%): Travel, entertainment, hobbies
- Healthcare (15-20%): Medicare premiums, prescriptions, dental
- Emergency Fund: 6-12 months of expenses in cash
- Gifts/Charity (5-10%): Supporting family, donations
Working in Retirement
Many retirees choose to work part-time for extra income and engagement:
- Consulting in your field
- Part-time retail or service work
- Freelancing or gig economy work
- Teaching or tutoring
- Starting a small business
Note: Working while collecting Social Security before full retirement age reduces
benefits temporarily.