Retirement Basics Made Easy
Frequently Asked Questions
How much money do you need to retire?
You can know how much money you’ll need to retire by following a series of steps that provide a ballpark dollar amount. Calculate the income you need during retirement, estimate additional income sources like Social Security, use the 4% rule, and then determine how much you need to save to hit your goal.
How do you retire early?
By planning ahead. Some of the most important decisions you can make as you plan to retire early include setting an age at which you want to retire, whether you’ll work when you’re retired, what level of income you’ll need once you retire. This process will require you to choose investment strategies, a choice that could be easier by hiring a trustworthy financial advisor.
What’s a good when-can-I-retire calculator?
The best retirement calculators are accurate, easy to use, informative, and provide a weighted result. Based on The Balance’s research, the MaxiFi (formerly ESPlanner BASIC) and NewRetirement retirement calculators are the best available retirement calculators on the market.
How long will your retirement savings last?
The answer to this question depends on a variety of factors, including how long you live, your health care expenses, inflation, how much you withdraw and spend, your rate of return, and your sequence of returns. These factors aside, one popular method of knowing how long your retirement will last is the 4% rule.
How old do you have to be to retire?
There is no single answer for how old you have to be to retire. The age at which you leave the workforce depends on many factors. However, the average age of retirement in the U.S. is 65 for men and 63 for women as of 2021. It may help to take some time to figure out if you have enough money to retire.
What is the multiply-by-25 rule for retirement saving?
The 25x rule provides a lump-sum amount that allows you to make steady withdrawals each year for a span of 30 years. It works because it allows you to gauge your retirement needs without having to factor in a vast number of unknowns, and with a bit of cushion built-in. The 25x rule is one of several retirement rules, including the $1,000-a-month rule.
What’s the difference between a traditional IRA and a Roth IRA?
The main difference between traditional and Roth IRAs is when you pay taxes. Traditional IRA contributions can be taxed when they’re made but you’ll pay income taxes when you withdraw the funds during retirement, whereas Roth IRA contributions are made with after-tax dollars.
Safe harbor 401(k)
A safe harbor 401(k) is a type of retirement plan that helps small-business owners accommodate the Internal Revenue Service (IRS) nondiscrimination test. It's a way to structure a plan that automatically passes the test or avoids it altogether.
A pension is a retirement plan that provides a monthly income. The employer bears all of the risk and responsibility for funding the plan. Learn more about pensions and how they work.
A contingent beneficiary is someone or something that receives a bequest of a beneficiary-named financial account if the primary beneficiary can't or won't do so. Contingent beneficiaries effectively wait in the wings. They're next in line to inherit if the assets can't go to the primary beneficiary.
A 403(b) plan is a tax-sheltered annuity (TSA) plan offered to employees of tax-exempt organizations such as nonprofits, churches, hospitals, and public education institutions. Employers might offer these retirement savings plans as part of an employee's benefits package, and they can actually benefit both parties.
A Keogh (Key-Oh) plan is a type of retirement plan for self-employed people or unincorporated businesses. This type of plan is now called an HR-10 or qualified retirement plan. Find out what Keogh plans require and how they differ from other retirement plan options.
A traditional IRA is an investment account that offers tax-advantaged retirement savings. Contributions to a traditional IRA are tax-deductible, though you must pay tax on withdrawals in retirement.
A 401(k) is an employer-sponsored retirement savings plan that lets employees set aside a portion of their wages for the future. It also allows them to reap tax benefits in the process.
A Roth IRA is a double-tax-advantaged retirement savings account that offers tax-free earnings growth and tax-free distributions. Given the limited opportunities for these tax advantages, opening a Roth IRA is a great way to become financially independent by retirement.
Stable value fund
A stable value fund is a low-risk investment similar to a money market fund. It invests in wrap contracts that offer a guaranteed return.
Required minimum distributions
Required minimum distributions, or RMDs, are congressionally mandated distributions from a qualified retirement plan. RMD rules dictate the minimum amount you must withdraw from your account every year beginning by age 72 or 70½, depending on what your age was on Jan. 1, 2020.
American Enterprise Institute. "The Average US Retirement Age Increased Over the Past 30 Years," Page 2.
Fidelity. "The FIRE Movement Is Alive and Well."
Internal Revenue Service. "Topic No. 451 Individual Retirement Arrangements (IRAs)."
Internal Revenue Service. "401(k) Plan Overview."
Internal Revenue Service. "Definitions."
Washington State Department of Retirement Systems. "Beneficiary Designation," Page 2.
Internal Revenue Service. "IRC 403(b) Tax-Sheltered Annuity Plans."
Internal Revenue Service. "Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)," Page 12.
Internal Revenue Service. "Traditional IRAs."
Internal Revenue Service. "401(k) Plans."
Internal Revenue Service. "Roth Comparison Chart."
U.S. Department of Labor. "Advisory Council Report on Stable Value Funds and Retirement Security in the Current Economic Conditions."
Internal Revenue Service. "Retirement Topics — Required Minimum Distributions (RMDs)."