Retirement Planning FAQs: What You Need to Know Before You Stop Working

How much money do I need to retire?

The most widely cited benchmark is the 4% rule — the idea that you can withdraw 4% of your portfolio annually in retirement without running out of money over a 30-year period. That means a $1 million portfolio supports roughly $40,000 per year in withdrawals. But your number depends on your expected expenses, your other income sources (Social Security, pension, annuity), your health, and how long you expect to live. Many financial planners now use a more conservative 3–3.5% withdrawal rate given today's interest rate environment and longer life expectancies.

When should I start saving for retirement?

As early as possible. The most powerful force in retirement savings is compound growth over time. A 25-year-old who saves $300 per month and earns a 7% average annual return will have significantly more at 65 than a 35-year-old who saves the same amount at the same rate — because of the extra decade of compounding. If you haven't started yet, the second-best time is today.

What is the difference between a traditional IRA and a Roth IRA?

With a traditional IRA, contributions may be tax-deductible, and you pay taxes when you withdraw the money in retirement. With a Roth IRA, contributions are made with after-tax dollars, but qualified withdrawals in retirement are completely tax-free — including all the growth. Roth accounts are generally more advantageous if you expect to be in a higher tax bracket in retirement than you are today. Income limits apply to Roth IRA contributions.

What is a 401(k) and how does it work?

A 401(k) is an employer-sponsored retirement savings plan that allows you to contribute pre-tax dollars from your paycheck. Many employers match a portion of your contributions — this is essentially free money and should always be captured first. Contributions grow tax-deferred, and you pay taxes when you withdraw in retirement. In 2026, the contribution limit is $23,500 per year ($31,000 if you're 50 or older).

What are required minimum distributions (RMDs)?

The IRS requires you to begin taking minimum distributions from traditional IRAs and 401(k)s starting at age 73. The amount is calculated based on your account balance and your life expectancy. Failing to take your RMD results in a significant penalty. Roth IRAs are not subject to RMDs during the owner's lifetime, which is one reason high-income earners often use Roth conversions as part of their retirement tax strategy.

What is a pension, and do they still exist?

A pension — formally called a defined benefit plan — is a retirement plan in which your employer promises you a specific monthly income in retirement, typically based on your years of service and salary history. Pensions are less common in the private sector today but remain prevalent in government and some union jobs. If you have a pension, understanding your payout options (lump sum vs. monthly annuity) is an important retirement planning decision.

How do I protect my retirement savings from market downturns?

Diversification, asset allocation, and time horizon are the primary tools. As you approach retirement, gradually shifting a portion of your portfolio from equities to more stable assets (bonds, fixed annuities) reduces your exposure to a major market decline right before or after you retire — a risk known as sequence-of-returns risk. Annuities with guaranteed income riders can also provide a floor of income that is not affected by market performance.