Retirement planning looks complicated because of account names, but underneath it is three ideas: save regularly, let compounding work for decades, and turn the pot into income at the end. Every figure here was produced by running the matching calculator or its formula. Rules, limits and tax treatment differ by country and change often, so this guide covers the arithmetic, not tax advice.
1. Saving regularly and the power of time
Saving $500 a month at 7% a year for 30 years grows to $609,985 from only $180,000 of deposits; the rest is growth. The Retirement Calculator, 401(k) Calculator, IRA Calculator and Roth IRA Calculator project this for your numbers (a $6,000 a year Roth IRA contribution for 30 years reaches $566,765). See How Compound Interest Works for why starting early matters so much.
Employer matching is free money. On a $60,000 salary, saving 10% with an employer match of 50% of the first 6% adds $150 a month, which lifts the 30-year result to $792,981, $182,996 more, from $54,000 of employer money.
Inflation shrinks the target. $609,985 in 30 years is worth about $251,306 in today's money at 3% inflation. Plan in real terms; see Inflation.
Fees compound too. On $10,000 growing at 7% a year for 30 years, a fund charging 0.1% a year ends at $78,780 and one charging 1% ends at $60,226: a $18,554 gap from fees alone. Test it in the Mutual Fund Calculator.
2. Traditional versus Roth: tax now or tax later
A traditional account deducts contributions now and taxes withdrawals later; a Roth taxes contributions now and withdrawals are tax-free. If your tax rate is the same both times, the result is identical: $1,000 of pre-tax pay at 24% grows 30 years at 7% (a factor of 7.612) to $5,785 after tax either way. The choice matters only when rates differ. If you expect a lower rate in retirement, say 12%, the traditional route ends at $6,699; if you expect a higher rate, the Roth wins.
3. How much is enough?
A common target is 25 times your yearly spending, the amount at which a 4% withdrawal rate covers your expenses. With $40,000 of spending, that is $1,000,000. The FIRE Calculator shows how long that takes: starting with $100,000 and saving $20,000 a year at a 5% real return reaches it in about 21 years, and it also gives a "coast" number, $295,303 today, that would grow to the target by age 55 with no more saving.
The 4% figure comes from historical simulations and is a rule of thumb, not a guarantee. The Retirement Calculator lets you test it: withdrawing $40,000 a year (rising 3% for inflation) from $1,000,000 lasts the full 60 years at a 7% return, but the money runs out in 30 years if returns are only 4%. Returns, inflation and the order of good and bad years all matter.
4. Turning savings into income
- Annuity payout: drawing $500,000 down to zero over 25 years at 5% pays $2,922.95 a month ($876,885 in total). Try the Annuity Payout Calculator.
- Pension: a defined-benefit plan typically pays
years of service × accrual rate × final average salary: 30 years at 1.5% of an $80,000 salary is $36,000 a year, $3,000 a month. See the Pension Calculator. - Required minimum distributions (RMDs): many tax-deferred accounts must be drawn down from a set age. The amount is
balance ÷ divisor; with a divisor of 26.5 (the US table at age 73), a $500,000 balance requires $18,867.92. Ages and tables change, so check the rules; the RMD Calculator uses the current table. - Social Security (US) pays a monthly benefit based on your 35 highest-earning years, reduced if claimed early and increased if delayed. Estimate it in the Social Security Calculator.
5. The other savings goals
- Emergency fund: three to six months of spending. For $3,000 a month, six months is $18,000; saving $500 a month from $2,000 takes 32 months. See the Emergency Fund Calculator.
- College: a $25,000 a year cost today becomes $60,165 a year in 18 years at 5% inflation, $259,321 for four years, which needs $669.47 a month at 6%. Use the College Cost Calculator.
- Net worth: assets minus liabilities, tracked over time, tells you whether all of this is working; see the Net Worth Calculator.
- Selling investments: gains are taxed when realised, often at lower rates for assets held more than a year in the US; estimate in the Capital Gains Tax Calculator.
- Borrowing to invest magnifies both gains and losses; see the Margin Calculator and Margin (trading).
Common mistakes
- Waiting to start. Ten years of delay can cost more than the contributions made in them.
- Ignoring fees and inflation. Both reduce the result every year.
- Treating 4% as a promise. Test your plan against low-return scenarios.
- Skipping the employer match. It is an instant return on your contribution.