The average American needs $1-2 million saved for retirement, yet 56% have less than $100,000. This guide explains retirement accounts, contribution limits, and how much you should actually save.
2025 Contribution Limits
- 401(k): $23,500 ($31,000 if 50+)
- IRA: $7,000 ($8,000 if 50+)
- Roth IRA income limit: $161K single, $240K married
- HSA: $4,300 individual, $8,550 family
Retirement Account Types
| Account | 2025 Limit | Tax Benefit | Best For |
|---|---|---|---|
| 401(k) | $23,500 | Pre-tax (traditional) | Employer match |
| Roth 401(k) | $23,500 | Tax-free growth | High earners, young |
| Traditional IRA | $7,000 | Tax deduction | No employer plan |
| Roth IRA | $7,000 | Tax-free growth | Lower tax bracket now |
| SEP IRA | $69,000 | Pre-tax | Self-employed |
| HSA | $4,300/$8,550 | Triple tax advantage | Healthcare + retirement |
Traditional vs. Roth: Which is Better?
Traditional (Pre-Tax)
- Tax now: Deductible, lowers today's taxes
- Tax later: Pay income tax on withdrawals
- Best if: High tax bracket now, lower in retirement
- Required distributions: Must start at 73
Roth (After-Tax)
- Tax now: No deduction, pay taxes today
- Tax later: Withdrawals are 100% tax-free
- Best if: Lower tax bracket now, higher later
- No required distributions: More flexibility
How Much Should You Save?
Savings Guidelines by Age
| Age | Target Savings (× Salary) | Example ($75K salary) |
|---|---|---|
| 30 | 1x salary | $75,000 |
| 35 | 2x salary | $150,000 |
| 40 | 3x salary | $225,000 |
| 45 | 4x salary | $300,000 |
| 50 | 6x salary | $450,000 |
| 55 | 7x salary | $525,000 |
| 60 | 8x salary | $600,000 |
| 67 | 10x salary | $750,000 |
General rule: Save 15% of income (including employer match)
Retirement Planning Priority Order
- Get employer 401(k) match: It's free money (100% return)
- Pay off high-interest debt: Anything over 7-8%
- Build emergency fund: 3-6 months expenses
- Max out Roth IRA: $7,000/year (if eligible)
- Max out 401(k): $23,500/year
- Consider HSA: If you have HDHP
- Taxable brokerage: After maxing tax-advantaged accounts
The Power of Starting Early
Investing $500/month from Different Ages
Assuming 7% average annual return until age 65:
- Start at 25 (40 years): $1,197,811
- Start at 35 (30 years): $566,765
- Start at 45 (20 years): $260,464
- Start at 55 (10 years): $86,542
Waiting 10 years costs you over $600,000!
Investment Strategy by Age
In Your 20s-30s
- 100% stocks (or age in bonds: 70-80% stocks)
- Low-cost index funds (S&P 500, Total Market)
- Maximum risk tolerance (time to recover)
- Focus on increasing contributions
In Your 40s-50s
- 70-80% stocks, 20-30% bonds
- Catch-up contributions at 50
- Review and rebalance annually
- Calculate retirement number more precisely
In Your 60s+
- 50-60% stocks, 40-50% bonds/cash
- Bucket strategy for withdrawals
- Consider Social Security timing
- Plan for healthcare costs
Common Retirement Mistakes
- Not starting early enough: Compound interest is powerful
- Missing employer match: Leaving free money on table
- Cashing out when changing jobs: Penalties + taxes
- Too conservative too young: Missing growth
- Not increasing contributions: With raises
- Ignoring fees: 1% fee = $100K+ lost over career
- Taking 401(k) loans: Derails compound growth
Social Security Tips
- Full retirement age: 67 for those born 1960+
- Early (62): 30% permanent reduction
- Delay to 70: 8%/year increase (24% more than 67)
- Break-even age: ~82-83 (delay usually wins if healthy)
- Check estimate: ssa.gov/myaccount
Healthcare in Retirement
Plan for Healthcare Costs
- Average couple needs: $315,000 for healthcare in retirement
- Medicare starts at 65: But doesn't cover everything
- Gap coverage: Medigap or Medicare Advantage
- HSA: Great for healthcare in retirement (triple tax advantage)