Retirement Planning: Finding Your Number and Reaching It
Retirement planning reduces to one question: is the gap between what you have and what you will need closable in the time remaining? Everything else is detail.
This guide covers how to compute the target, which accounts to use, and the three levers that matter most when the answer is uncomfortable.
Key takeaways
- Target roughly 25× annual spending, adjusted for Social Security and retirement age.
- The 4% rule was tested on 30-year retirements — use 3.25–3.5% for longer horizons.
- Delaying Social Security to 70 raises the benefit about 8% a year past full retirement age.
- Working two more years is usually more powerful than any change to investment allocation.
Calculating the number
Start with annual spending in retirement, not income. The common shorthand of 70–80% of pre-retirement income assumes several costs disappear — retirement contributions, payroll tax, commuting and often a mortgage. For many households that is roughly right.
Multiply that spending by 25 for a 4% withdrawal rate. If you expect to spend $70,000 a year, that implies $1.75 million. Then subtract what Social Security will cover — roughly 40% of pre-retirement income for a median earner and proportionally less for higher earners — which reduces the required portfolio substantially.
Roth or traditional
Traditional contributions are deductible now and taxed on withdrawal. Roth contributions are taxed now and withdrawn tax-free. The decision reduces to whether your rate today is higher or lower than it will be when you withdraw.
Early-career workers in the 12% or 22% bracket usually benefit from Roth. Peak earners at 32% and above usually benefit from traditional. Splitting hedges against future tax law changes, which nobody can forecast. Roth carries two secondary advantages: no required minimum distributions during your lifetime, and contributions withdrawable at any time without penalty.
Withdrawal rates and sequence risk
The 4% rule comes from testing historical 30-year retirement periods, and it survived nearly all of them. Two things limit its application to longer horizons.
The first is simply duration — a 40-year retirement has meaningfully lower historical success rates at 4%. The second is sequence-of-returns risk: a severe downturn in the first few years does far more damage than the same downturn later, because you are selling depressed assets to fund spending. Common responses are a 3.25–3.5% initial rate, holding one to three years of spending in cash to avoid forced selling, and remaining willing to reduce spending in bad years — which improves the odds considerably.
Social Security timing
Claiming early at 62 permanently reduces the benefit by up to 30%. Delaying past full retirement age increases it by about 8% a year until 70. That increase is inflation-adjusted and guaranteed for life, which no investment matches.
For most people in reasonable health, delaying to 70 is the better expected outcome, particularly for the higher earner in a married couple — the survivor keeps the larger of the two benefits, so delaying protects the surviving spouse for the rest of their life. Claiming early makes sense with poor health, an urgent income need, or no other assets to bridge the gap.
The three levers when you are behind
Catch-up contributions allow substantially higher 401(k) and IRA limits from age 50, which is meaningful if the cash flow exists.
Delaying retirement by two or three years is usually the most powerful adjustment available, because it adds contributions and growth while simultaneously removing withdrawal years from the other end. And reducing planned spending lowers the target by 25× every dollar cut, which makes it the highest-leverage change of all.
Common questions
How much do I need to retire?
Roughly 25 times annual spending at a 4% withdrawal rate. Adjust down for Social Security or a pension, and up if you retire before 60 — the money must last longer and Medicare is not available until 65.
How much should I have saved by my age?
A common benchmark targets one times salary by 30, three times by 40, six times by 50, eight times by 60 and ten times by 67. These assume a continuous career from the early twenties, which describes a minority of actual careers.
Can I retire early if my money is in a 401(k)?
Yes, with planning. Rule 72(t) substantially equal periodic payments, Roth conversion ladders and the rule of 55 all allow penalty-free early access under specific conditions. Most early retirees also hold a taxable account as a bridge for the first five years.
What is the biggest retirement planning mistake?
Contributing below the employer match, which is declining part of your compensation. After that, judging progress on nominal balances without adjusting for inflation — a $2 million projection thirty years out buys roughly what $825,000 buys today.
How much will healthcare cost in retirement?
Medicare begins at 65 and covers a substantial share, but premiums, supplements and out-of-pocket costs still add up — commonly $6,000–8,000 a year per person. Retiring before 65 means individual-market coverage, which frequently runs $800–1,800 a month for a couple and is often the largest single line item in early retirement.