Most people want to retire someday. But everyone's retirement plans are a little different. There are multiple ways to get there. And some people want to live more luxuriously or frugally than others.
Planning for retirement should be based on the life you want to lead and the financial options available to you. And the sooner you sort out the details, the better. Retirement may seem like a long way off, but by deciding on the details now, you'll be better prepared for when and how you want to retire.
This guide covers:
- How much should you save for retirement?
- Choosing a retirement account
- Additional income to consider
- Post-retirement options for self-employed people
How much should you save for retirement?
How much you ultimately need to save will depend on what you want your retirement to look like. Some people think of traveling the world when they retire. Or live close to family. Maybe you have a hobby that you'd like to spend more time and money on. Perhaps for you, life after retirement will look similar to life now, only without a job.
For many people, that's a good place to start. Think about how much you are currently spending and ask yourself: Do you want to spend more or less each year in retirement? How long do you want your money to last? Answering these questions will help you figure out how much money you need to reach and help you think about managing your retirement income.
Don't forget to think about where you want to live. The cost of living varies widely and has a big impact on the lifespan of your money. If you move to a place with a lower cost of living, you will need less money to support your retirement. Want to live life to the fullest in New York City, Seattle, or San Francisco? Plan to save even more.
And finally, when do you want to retire? This gives you a target date (called a time horizon in investing) for which you want to save it. We will also let you know how much money you will need until you retire. Retiring early shortens your time and increases the expected number of years you need to save.
Choosing a retirement account
Once you know how much you need to save, it's time to think about where you'll spend that money. Earn interest and take advantage of tax benefits to reach your goals faster. That's why choosing the right investment account is an important part of your retirement planning. There are generally many different types of investment accounts, but people typically use five main types to save for retirement:
- Traditional 401(k)
- Roth 401(k)
- Traditional IRA (Individual Retirement Account)
- Roth IRA (Individual Retirement Account)
- Health Savings Account (HSA)
Traditional 401(k)
A Traditional 401(k) is an employer-sponsored retirement plan. They have two valuable advantages:
- Your employer may match a portion of your contributions
- Your donation is tax deductible
You can invest in a 401(k) only if your employer offers one. If you do, and it matches your contribution percentage, this is almost always the account you'll want to use. Contribution match is free money. You don't want to leave it on the table. Contributions are also tax-deductible, which reduces the income taxes you pay while saving for retirement.
Roth 401(k)
A Roth 401(k) works exactly like a Traditional, with one important difference. That means you can reap the tax benefits later. You make a contribution, your employer (in some cases) matches a portion of your contribution, and you pay taxes as usual. However, if you withdraw the funds at retirement, you will not be taxed. This means that the interest you earn on your account is tax-free.
Both the Roth and Traditional 401(k) allow you to contribute up to $23,500 in 2025, or $31,000 if you're 50 or older.
Traditional IRA (Individual Retirement Account)
Like a 401(k), an IRA offers tax benefits. Depending on your income, contributions can reduce your pre-tax income and therefore pay less income taxes by the time you retire. The biggest difference? Your employer is not matching your contributions. Annual contribution limits are also significantly lower, at just $7,000 in 2025 and $8,000 if you're 50 or older.
Roth IRA (Individual Retirement Account)
A Roth IRA works similarly, but like a Roth 401(k), it offers tax benefits in retirement. Your contributions still count as taxable income, but all interest is tax-free when you withdraw them in retirement.
So, should you use a Roth or a Traditional account? One option is to use both a Traditional and a Roth account for tax diversification in retirement. Another strategy is to compare your current tax bracket to your expected tax bracket in retirement and try to optimize accordingly. Also keep in mind that your income may fluctuate throughout your career. So even if you choose Roth now, you might switch to Traditional after a big promotion.
Health Savings Account (HSA)
HSAs are also a viable option. Contributions to an HSA are tax-deductible, and distributions are tax-free if the funds are used for medical expenses. After age 65, you can withdraw funds for non-medical expenses just like you would from a traditional 401(k) or IRA.
You can only contribute to your Health Savings Account if you have a high-deductible health plan (HDHP). In 2025, you can contribute up to $4,300 to an HSA if your HDHP covers only you.
$8,550 if HDHP covers family.
What other income can I expect?
If you keep enough money in your retirement account, distributions can cover your expenses in retirement. However, if you can rely on other sources of income, you may not need to save as much. For many people, a common source of income in retirement is Social Security. As long as you or your spouse have made sufficient Social Security contributions throughout your career, you should receive Social Security benefits. Even if you retire a little early, you can still receive some benefits (though the amount may be less).
This can amount to several thousand dollars per month. You can use the Social Security Administration's Retirement Estimator to estimate the benefits you will receive.
Self-employed retirement account
If you are self-employed, there are some additional options to consider.
1 Participant 401(k) Plan or Solo 401(k)
A Solo 401(k) is similar to a regular 401(k). However, with a Solo 401(k), you are both an employer and an employee. You can combine employee and employer contribution limits. As long as you don't have any employees and it's your own company, this is a pretty solid option. However, Solo 401(k)s typically require more advance planning and ongoing documentation than other account types.
If your circumstances change, you may be able to rollover your Solo 401(k) plan or consolidate your IRA into a more appropriate retirement savings account.
Simple Employees’ Pension (SEP IRA)
With a SEP IRA, companies set up an IRA for each employee. Only employers can contribute, and the contribution rate must be the same for each eligible employee.
Employee Savings Incentive Match Plan (SIMPLE IRA)
SIMPLE IRAs are ideal for small business owners with 100 or fewer employees. Both employers and employees can contribute.
You can also contribute to a Traditional or Roth IRA. However, the amount you can contribute depends on how much you've put into other retirement accounts.
