Retirement Planning Essentials

Retirement planning is the most important financial goal you will ever have. The earlier you start, the easier it becomes through the power of compounding.

How Much Do You Need?

The 25x Rule

• Calculate your annual expenses in retirement
• Multiply by 25
• That is your target retirement fund
• Example: $50,000/year expenses x 25 = $1,250,000

The 4% Rule

• Withdraw 4% of your portfolio annually
• Portfolio should last 30+ years (historically)
• Adjust for inflation each year
• Conservative approach: use 3.5%

Factors That Affect Your Number

• Desired retirement age
• Expected lifestyle and expenses
• Healthcare costs (significant factor)
• Inflation over time
• Social security or pension income
• Part-time work in retirement

Retirement Accounts

Employer-Sponsored Plans

• 401(k) / 403(b) plans
• Employer matching (free money - always take it)
• Higher contribution limits
• Limited investment options
• Required Minimum Distributions (RMDs) at 73

Individual Retirement Accounts

• Traditional IRA: Tax deduction now, taxed later
• Roth IRA: No deduction now, tax-free later
• Can have both a 401(k) and IRA
• Roth conversions can optimize taxes

Priority Order

1. 401(k) up to employer match (free money first)
2. Roth IRA to maximum
3. 401(k) to maximum
4. Taxable brokerage account
5. Additional tax-advantaged options (HSA, 529)

Age-Based Strategies

In Your 20s

• Time is your greatest asset
• 100% stocks is appropriate (decades to recover from dips)
• Even $200/month grows enormously
• Focus on increasing income and savings rate

In Your 30s

• Increase contributions with salary raises
• Start thinking about asset allocation
• 80-90% stocks, 10-20% bonds
• Avoid lifestyle inflation eating your raises

In Your 40s

• Catch-up if behind (increase contributions significantly)
• 70-80% stocks, 20-30% bonds
• Eliminate all non-mortgage debt
• Estimate retirement expenses realistically

In Your 50s

• Catch-up contributions available
• 50-60% stocks, 40-50% bonds
• Plan social security claiming strategy
• Consider healthcare costs carefully

In Your 60s

• Transition to income-focused portfolio
• 30-40% stocks, 60-70% bonds/income
• Create a withdrawal strategy
• Plan for Required Minimum Distributions

Asset Allocation Guidelines

Age-Based Rule of Thumb

• Stocks: 110 minus your age (percentage)
• Age 30: 80% stocks, 20% bonds
• Age 50: 60% stocks, 40% bonds
• Age 70: 40% stocks, 60% bonds
• Adjust based on risk tolerance

Target-Date Funds

• Automatically adjust allocation over time
• Choose fund matching your expected retirement year
• "Set it and forget it" approach
• Good option for hands-off investors

Common Retirement Mistakes

1. Not starting early enough (the #1 mistake)
2. Not taking full employer match (leaving free money)
3. Cashing out when changing jobs
4. Being too conservative when young
5. Not accounting for healthcare costs
6. Underestimating how long you will live
7. Ignoring inflation in planning

Key Takeaways

1. Start as early as possible - even small amounts compound significantly
2. Always take the full employer match (it is free money)
3. Use the 25x rule to estimate your retirement target
4. Adjust your stock/bond allocation as you age
5. Healthcare costs are the biggest wild card in retirement planning