Retirement planning means setting your goals, then saving, investing and drawing down money to fund the life you want after work and revisiting the plan as circumstances change.
Start saving as early as you can. Compounding rewards time, so early dollars do the most work.
Use tax-advantaged accounts like a 401(k) and IRA. In 2026 you can contribute up to $24,500 to a 401(k) and $7,500 to an IRA, with catch-up contributions if you’re 50 or older.
A common savings target is 25 times your desired annual income, based on a starting withdrawal rate of around 4%.
Retirement planning is the process of setting your retirement goals and building a financial strategy to save, invest and eventually draw down money so you can sustain your lifestyle after you stop working. It comes down to five essential steps and because your circumstances, priorities and goals shift over time, it’s worth revisiting your plan regularly to stay on track.
5 essential steps to take when planning for retirement
The idea of planning for life after work can feel intimidating. You want to save enough that you won’t run out of money, while still balancing today’s financial priorities. These five steps will help you build a strategy to establish, grow and manage your retirement savings as part of your bigger financial picture.
1. Start saving and keep saving
The single most powerful lever in retirement saving is time, because of compounding. Compounding is the process of earning returns on your original contributions and on the returns you’ve already earned. In other words, earning money on your money. The longer it runs, the more powerful it becomes. Research from Goldman Sachs has repeatedly found that a large share of American workers feel behind on their retirement savings, so the sooner you start, the better positioned you’ll be.
Here’s a simple example. Say you buy a $1,000 bond paying 4% a year and reinvest the interest. You earn $40 in year one, leaving you $1,040. In year two, that same 4% earns $41.60 because you’re now earning interest on your interest. Stretch that effect across decades and the growth becomes substantial, which is why starting early matters so much.
2. Know your retirement spending needs
Retirement can be expensive. People are living longer, healthcare costs have climbed sharply over the past two decades, and you may want to travel or dine out more once you have the time. A widely used rule of thumb is that you’ll need about 70% to 80% of your pre-retirement income each year, which accounts for costs that often fall away in retirement, like commuting and payroll taxes.
Surveys consistently find that housing is retirees’ single largest expense, followed by food and healthcare and there’s no guarantee your total spending drops once you stop working. With your expected costs and ideal lifestyle in mind, you can apply a savings guideline to estimate your target. One of the best known is the 4% withdrawal rule.
The 4% withdrawal rule
First introduced by financial advisor William Bengen in 1994, the 4% rule says you can withdraw 4% of your savings in your first year of retirement, then adjust that dollar amount for inflation each year, and expect your portfolio to last at least 30 years.
The guidance has since evolved. In his 2025 book A Richer Retirement, Bengen raised his own figure to 4.7%, arguing that a more diversified portfolio supports higher withdrawals. Morningstar, which takes a forward-looking approach, landed on 3.9% as the safe starting rate for those retiring in 2026. The takeaway: 4% remains a reasonable planning anchor, but the “right” rate depends on your portfolio, your flexibility and market conditions.
How much money will I need in retirement?
You can flip the 4% rule around to estimate your savings target in two steps:
Decide on the annual income you want from your savings.
Divide that number by 4% (the same as multiplying by 25).
That gives you the nest egg needed to withdraw that amount in your first year. Here’s how it plays out at different income levels.
Desired annual income from savings
Required savings (25x)
$40,000
$1 million
$50,000
$1.25 million
$60,000
$1.5 million
$70,000
$1.75 million
$80,000
$2 million
Remember, your savings likely won’t be your only income. Social Security can supplement it, though it’s designed to replace only about 40% of an average earner’s pre-retirement income, so it’s rarely enough on its own.
3. Consider your time horizon
Your time horizon shapes how you should invest, because it tells you how long your money can work for you before you need it. It’s a key input for your risk tolerance and overall asset allocation.
It also covers how long your money needs to last once you retire. This is where the old “plan to age 80” thinking falls short: a 65-year-old in the US today can expect to live roughly 19 to 20 more years on average (roughly 84 or 85) and around one in four will live past 90. So if you retire at 65, planning for a 25- to 30-year retirement is far safer than assuming 15.
On Social Security timing: the earliest you can claim is 62, but your benefit is reduced if you claim before your full retirement age (67 for anyone born in 1960 or later). Waiting until 70 earns the maximum benefit.
4. Determine an investment strategy
Your time horizon and spending needs drive your investment strategy. If you’re younger, you can generally tolerate more risk, since you have time to recover from downturns. If you’re closer to retirement, preserving what you’ve built usually takes priority.
Stocks are volatile in the short term but offer strong long-term growth. The stock market has returned roughly 10% a year historically, or about 7% after inflation. The further you are from retirement, the more comfortably you can hold riskier assets like stocks. Closer in, stable investments like bonds tend to be more suitable. Bonds carry their own risk, though: inflation can outpace their returns, so a diversified portfolio helps guard against that.
5. Leverage tax-advantaged retirement accounts
Accounts like the 401(k) and individual retirement account (IRA) let you save in a tax-advantaged way. Traditional 401(k)s and IRAs give you an upfront tax break by lowering your taxable income the year you contribute. Roth versions work in reverse: you contribute after-tax dollars, and qualified growth and withdrawals in retirement are tax-free.
401(k)s are typically limited to a menu of mutual funds, while IRAs let you hold most investment types — so between the two you have plenty of flexibility. The IRS sets annual contribution limits, which rise most years. Here’s where they stand for 2026.
Account
2026 contribution limit
Catch-up (age 50+)
401(k), 403(b), most 457(b)
$24,500
$8,000 ($11,250 for ages 60-63)
Traditional & Roth IRA
$7,500
$1,100
A few details worth knowing: the combined employee-and-employer 401(k) limit is $72,000 in 2026, and starting in 2026, catch-up contributions to workplace plans must be made on a Roth (after-tax) basis if you earned more than $150,000 the prior year.
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Prioritize all your financial goals
Retirement saving is just one part of your overall financial plan, so it’s important to balance it against today’s need, especially building an emergency fund and paying down high-interest debt. Here’s a sensible order of operations.
Capture your full 401(k) match first. An employer match is free money for retirement, so contribute at least enough to get the full match before anything else.
Then clear high-interest debt. If your credit card interest rate is higher than your expected investment returns, paying that debt off gives you a better guaranteed return than investing would.
Build an emergency fund. Aim for three to six months of essential expenses so an unexpected setback doesn’t send you to a credit card or high-interest loan.
How much do Americans think they need to retire?
Expectations vary widely. In a Finder survey of 2,033 US adults, about one in five (20%) said they could retire comfortably on $250,000 or less, while a combined 31% said they’d need more than $1 million.
How much do you think you ll need to have saved to retire comfortably?
Response
% of Americans
Less than $250k
20%
$750k - $999K
14%
$500k - $749k
16%
$5 million +
4%
$4 - $4.99 million
1%
$3 - $3.99 million
2%
$250k - $499k
19%
$2 - $2.99 million
4.38%
$1.5 - $1.99 million
6.20%
$1 - $1.49 million
14.46%
Source: Finder survey by Qualtrics of 2,033 Americans
Bottom line
Careful planning is what makes a comfortable retirement possible. A plan that accounts for your time horizon, risk tolerance and desired lifestyle can get you on track and keep you there, as long as you check in on your progress over time. For a plan built around your specific situation, consider speaking with a reputable financial planner.
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Frequently asked questions about retirement planning
Created by financial advisor William Bengen in 1994, the 4% rule says retirees can withdraw 4% of their savings in the first year of retirement, then adjust that amount for inflation each year, and expect their portfolio to last at least 30 years. Bengen later raised his own estimate to 4.7% in his 2025 book, while Morningstar's 2026 guidance is a more conservative 3.9%.
The 25x rule estimates how much you need to save: multiply your desired annual withdrawal by 25. For example, if you want to draw $65,000 a year from savings, you'd aim for $1,625,000. It's the flip side of the 4% rule, since withdrawing 4% a year is the same as saving 25 times your annual spending.
For 2026, you can contribute up to $24,500 to a 401(k), 403(b) or most 457(b) plans, plus a catch-up of $8,000 if you're 50 or older (or $11,250 if you're aged 60 to 63). The IRA limit is $7,500, with a $1,100 catch-up for those 50 and up. Combined employee and employer 401(k) contributions are capped at $72,000.
As early as possible. Because compounding earns returns on your past returns, money you invest in your 20s or 30s has far longer to grow than money added later. Even small, consistent contributions early on can outweigh larger contributions made closer to retirement.
A safe withdrawal rate is the percentage of your savings you can withdraw each year without running out of money over a typical retirement. The classic benchmark is 4%, though estimates range from Morningstar's 3.9% for 2026 to William Bengen's updated 4.7%. Your ideal rate depends on your portfolio mix, life expectancy and how flexible you can be with spending.
Social Security is designed to replace only about 40% of an average worker's pre-retirement income. Higher earners typically see a smaller share replaced. Because of this, most people supplement Social Security with savings in a 401(k), IRA or other accounts.
There's no single figure, since it depends on your lifestyle, location and costs. A useful starting point is to estimate your annual retirement expenses, then work backward to the savings and income sources needed to cover them. Many planners use 70% to 80% of your pre-retirement income as a rough target.
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