Why Retirement Investing Matters
Social Security alone won't provide the retirement lifestyle most people want. The average Social Security benefit is around $1,800/month—likely not enough to maintain your current standard of living. Retirement investment basics help you bridge this gap.
Thanks to compound growth, starting early makes a massive difference. Someone who invests $500/month starting at age 25 will have significantly more than someone starting at 35 with the same contributions, even though they invested the same amount monthly.
Types of Retirement Accounts
401(k) Plans
Employer-sponsored retirement accounts with significant advantages:
- Contribution Limit: $23,000 in 2024 ($30,500 if 50+)
- Employer Match: Free money! Many employers match 3-6% of salary
- Tax Benefits: Traditional 401(k) contributions are pre-tax
- Automatic Investing: Payroll deductions make it effortless
Golden Rule: Always contribute enough to get the full employer match—it's an instant 50-100% return!
Traditional IRA
Individual Retirement Account with tax-deductible contributions:
- Contribution Limit: $7,000 in 2024 ($8,000 if 50+)
- Tax Treatment: Contributions may be tax-deductible; growth is tax-deferred
- Withdrawals: Taxed as ordinary income in retirement
- RMDs: Required minimum distributions starting at age 73
Roth IRA
After-tax contributions with tax-free growth:
- Contribution Limit: $7,000 in 2024 ($8,000 if 50+)
- Tax Treatment: Contributions are after-tax; growth and withdrawals are tax-free
- No RMDs: No required withdrawals during your lifetime
- Income Limits: Phase-out for high earners (around $150k+ single)
Best For: Younger investors who expect higher tax rates in retirement.
Roth vs Traditional: Which to Choose?
- Choose Roth if you're in a lower tax bracket now than you expect in retirement
- Choose Traditional if you're in a higher tax bracket now
- Consider Both: Tax diversification in retirement gives flexibility
How Much to Save for Retirement
Common guidelines:
- 15% Rule: Save 15% of income including employer match
- 25x Rule: Aim for 25 times your annual expenses by retirement
- 4% Rule: Plan to withdraw 4% annually in retirement
Retirement Savings by Age
| Age | Savings Target |
|---|---|
| 30 | 1x annual salary |
| 40 | 3x annual salary |
| 50 | 6x annual salary |
| 60 | 8x annual salary |
| 67 | 10x annual salary |
Investment Strategy by Age
20s-30s: Growth Phase
With decades until retirement, focus on growth:
- 80-90% stocks, 10-20% bonds
- Maximize contributions to get employer match
- Consider target-date funds for simplicity
40s-50s: Accumulation Phase
Peak earning years—maximize savings:
- 70-80% stocks, 20-30% bonds
- Take advantage of catch-up contributions after 50
- Begin thinking about retirement lifestyle
60s+: Preservation Phase
Protect what you've built:
- 50-60% stocks, 40-50% bonds
- Plan Social Security claiming strategy
- Consider healthcare costs and Medicare
Target-Date Funds
The simplest retirement investment option. Pick a fund matching your expected retirement year (e.g., 2050 fund), and it automatically adjusts asset allocation as you age. Perfect for hands-off investors.