Retirement Accounts Explained
401(k)
An employer-sponsored plan with a $23,500 annual limit ($31,000 if 50+). Many employers match contributions — typically 3-6% of salary. This match is free money and an instant 50-100% return. Always contribute enough to get the full match.
Compare 401k vs IRA to understand which to prioritize.
Traditional IRA
Contributions may be tax-deductible (reducing your current tax bill). Money grows tax-deferred. You pay income taxes when you withdraw in retirement. Best if you expect a lower tax bracket in retirement.
Roth IRA
Contributions are after-tax (no deduction now), but everything — growth and withdrawals — is completely tax-free in retirement. No required minimum distributions. You can withdraw contributions (not earnings) at any time penalty-free.
Roth vs Traditional IRA comparison.
HSA (Health Savings Account)
Triple tax advantage: tax-deductible contributions, tax-free growth, tax-free withdrawals for medical expenses. After 65, withdrawals for any purpose are taxed like a Traditional IRA. The "stealth IRA."
How Much to Save
Savings milestones by age (based on your salary):
- Age 30: 1x annual salary saved
- Age 35: 2x annual salary
- Age 40: 3x annual salary
- Age 45: 4x annual salary
- Age 50: 6x annual salary
- Age 55: 7x annual salary
- Age 60: 8x annual salary
- Age 67: 10x annual salary
Use our retirement calculator to model your specific situation.
Investment Strategy for Retirement
Your asset allocation should shift as you age:
- 20s-30s: 90% stocks / 10% bonds. Maximum growth. Decades to recover from downturns.
- 40s: 80% stocks / 20% bonds. Still growth-oriented with some stability.
- 50s: 60-70% stocks / 30-40% bonds. Begin shifting toward preservation.
- 60s+: 40-60% stocks / 40-60% bonds. Focus on income and capital preservation.
Target-date funds (like Vanguard Target Retirement 2055) handle this automatically.
The 4% Rule
Based on the Trinity Study, you can safely withdraw 4% of your portfolio in year one of retirement, then adjust for inflation each year, with a 95%+ probability of your money lasting 30 years.
This means: retirement savings needed = annual expenses x 25.
Social Security
Social Security replaces about 40% of pre-retirement income for average earners. Key ages:
- 62: Earliest claim age. Permanently reduced benefit (~30% less).
- 66-67: Full retirement age (FRA). Full benefit amount.
- 70: Maximum benefit (~24% more than FRA). Delaying is usually optimal.