Why Retirement Planning Matters
Here’s the uncomfortable math most people avoid: retirement can easily last 25-30 years, and Social Security was never designed to fund all of it. The average Social Security check replaces roughly 40% of pre-retirement income for most earners. That gap between what the government sends you and what you actually need to live on? That’s the gap your savings have to fill. The earlier you start planning for it, the less painful the process.
Starting Your Plan
Before you start optimizing account types and chasing returns, figure out what you’re actually aiming for. Look at your current spending and think about what changes in retirement. Commuting costs disappear. Work clothes and lunch expenses drop. But healthcare costs climb — significantly — and most retirees spend more on travel and hobbies in their first decade of retirement than they expected. A common starting target is 70-80% of your pre-retirement income, but honestly, that number varies wildly depending on whether you’re planning to stay home and garden or travel internationally.
Employer Retirement Plans
If your employer matches 401(k) contributions and you’re not maxing that match, you’re leaving free money on the table. That’s not a figure of speech — it’s literally compensation you’re declining. Traditional 401(k) contributions reduce your taxable income right now, which matters most when you’re in your peak earning years. Roth 401(k) contributions don’t give you a tax break today, but everything grows and comes out tax-free in retirement. The 2025 contribution limit is $23,500, with an additional $7,500 catch-up contribution if you’re over 50. Max both if you can swing it.
Individual Retirement Accounts
IRAs give you additional tax-advantaged space beyond your employer plan. Traditional IRAs may offer a tax deduction on contributions depending on your income and whether you’re covered by a workplace plan. Roth IRAs are funded with after-tax dollars but grow and withdraw completely tax-free — which is a powerful advantage if you believe your tax rate will be higher in retirement. The 2025 limit is $7,000, plus $1,000 catch-up for the over-50 crowd. Not huge numbers, but compounded over decades, that money adds up significantly.
Investment Strategy
The single biggest factor in your investment strategy is time horizon. If retirement is 25+ years away, you can weather stock market volatility in exchange for higher expected returns — and historically, you should. As retirement gets closer, gradually shifting toward bonds and stable assets protects you from a badly timed downturn that wrecks your retirement date. Target-date funds automate this glide path based on when you plan to retire, and they’re a perfectly reasonable choice if you’d rather not manage the allocation yourself.
Social Security Timing
You can start taking Social Security as early as 62 or as late as 70, and the difference in monthly payment is substantial — roughly 76% more at 70 compared to 62. Claiming early means smaller checks for a longer period. Waiting means larger checks for fewer years. The breakeven point where delayed claiming catches up to early claiming is typically around age 80-82. If you’re healthy and have other income to bridge the gap, waiting usually wins. If your health is poor or you need the income immediately, claiming earlier makes more sense. There’s no universally right answer — it depends on your specific situation.
