Retirement Planning FAQ
Answers to the most common retirement planning questions.
How much do I need to retire?
Multiply your expected annual retirement expenses by 25. This is based on the 4% safe withdrawal rate. For example, $60,000/year in expenses requires a $1,500,000 portfolio. Subtract guaranteed income like Social Security first — if you expect $24,000/year from Social Security, you only need to fund $36,000/year from savings, requiring a $900,000 portfolio.
What is the 4% rule?
The 4% rule states you can withdraw 4% of your portfolio in year one of retirement, adjust for inflation each year, and your money should last 30+ years in most historical market scenarios. It originated from the 1998 Trinity Study. For retirements longer than 30 years, a 3.5% withdrawal rate is considered safer.
When should I claim Social Security?
Claiming at 70 vs 62 increases your monthly benefit by approximately 77%. The break-even point — where delaying pays off — is typically around age 78–80. If you expect to live past 80 and have other income to bridge the gap, delaying to 70 is usually the better financial choice. For married couples, the higher earner should generally delay to maximize the survivor benefit.
How much should I have saved for retirement by age?
According to Federal Reserve data, US median retirement savings by age are approximately: age 35: $45,000; age 40: $93,000; age 45: $145,000; age 50: $203,000; age 55: $290,000; age 60: $368,000. A common benchmark is 1x your salary saved by 30, 3x by 40, 6x by 50, and 10x by retirement.
What is a Monte Carlo simulation for retirement?
A Monte Carlo simulation runs your retirement plan through thousands of randomly generated market scenarios to show the probability your savings will last. Instead of assuming average returns every year, it models the full range of possible outcomes including bad sequences of returns. A success rate above 90% is considered very safe; above 80% is generally acceptable.
What are the 401k contribution limits for 2026?
For 2026, the 401k employee contribution limit is $23,500 (under age 50) or $31,000 (age 50+). Workers aged 60–63 can contribute up to $34,750 under the super catch-up provision. The IRA contribution limit is $7,000 ($8,000 if 50+). The HSA limit is $4,300 for individuals and $8,550 for families.
How does inflation affect retirement savings?
At 3% annual inflation, your purchasing power is cut in half every 24 years. For a 30-year retirement, $60,000 in expenses today would cost over $145,000 in year 30. To protect against inflation: stay invested in stocks throughout retirement, delay Social Security to maximize COLA-adjusted benefits, consider TIPS bonds, and use a realistic 2.5–3% inflation assumption in your retirement plan.
Can I retire at 55?
Yes, retiring at 55 is achievable but requires more savings than a traditional retirement. With a 40-year horizon, use a 3.5% withdrawal rate (28–30x annual expenses). Key challenges: no Medicare until 65 (budget $800–1,500/month for health insurance), no Social Security until 62 at earliest, and no penalty-free 401k access until 59½ (except via the Rule of 55 for your current employer's plan).
What is the difference between a Roth IRA and a Traditional IRA?
Traditional IRA contributions are pre-tax — you get a tax deduction now and pay taxes on withdrawals in retirement. Roth IRA contributions are after-tax — no deduction now, but withdrawals in retirement are completely tax-free. Choose Traditional if you're in a high bracket now and expect lower taxes in retirement. Choose Roth if you're early in your career or expect tax rates to rise.
What is sequence of returns risk?
Sequence of returns risk is the danger that a major market decline in the early years of retirement will permanently damage your portfolio. Even if long-term average returns are the same, retiring into a bear market forces you to sell shares at low prices to fund living expenses, depleting your portfolio faster. Mitigation strategies include keeping 1–2 years of expenses in cash, using a bond ladder, and being willing to reduce spending in down years.
How do Required Minimum Distributions (RMDs) work?
Starting at age 73, the IRS requires you to withdraw a minimum amount from Traditional IRAs and 401ks each year. The amount is calculated by dividing your account balance by your life expectancy factor from IRS tables. Failing to take RMDs results in a 25% penalty on the amount not withdrawn. Roth IRAs are not subject to RMDs during your lifetime.
Should I pay off my mortgage before retiring?
Paying off your mortgage before retirement eliminates a major fixed expense and reduces the portfolio size you need. However, if your mortgage rate is low (under 4%), the math may favor keeping the mortgage and investing the difference. The non-financial benefit of a paid-off home — reduced monthly cash flow needs and peace of mind — is significant for most retirees.
See how these numbers apply to your specific situation