Retirement Planning in Plain English

The 4% rule turns spending into a target

The 4% rule is a simple starting point: in the first year of retirement, withdraw about 4% of your invested savings. In later years, raise that dollar amount with inflation, meaning the general rise in prices over time. Turning that around, you would save roughly 25 times the amount your portfolio needs to provide each year.

This is a rule of thumb, not a guarantee. The research behind it generally assumes a retirement lasting about 30 years and a diversified mix of investments. A diversified portfolio spreads money across different investments rather than depending on one company or market. Real markets do not rise steadily, and poor returns early in retirement can do more damage because you are withdrawing while values are down.

If you expect to retire very early, want to spend more in the first decade, or have little flexibility to reduce spending after a bad market, use a more cautious withdrawal rate. If you have strong pension income or can trim optional spending, you may have more room. Model how your savings could grow with the retirement savings projector, then test several return and spending assumptions rather than trusting one forecast.

This example uses the stated annual amounts before considering taxes, other income, timing differences or future inflation. Your personal Social Security benefit and spending target may be very different.

Social Security is the foundation, not the whole house

Social Security replaces roughly 40% of pre-retirement earnings for an average earner, according to the Social Security Administration (SSA). That is meaningful, but it also means the remaining spending must come from savings, a pension, work or another source. Higher earners generally receive a smaller replacement percentage.

Your benefit depends on your earnings history and the age when you claim. Claiming means starting your monthly payments. Starting earlier generally produces a smaller monthly check; waiting longer, up to the program’s maximum delay age, generally produces a larger one. The right timing depends on health, other income, cash needs, marital situation and how long you expect retirement to last.

Remember that retirement withdrawals can affect taxes. For 2026, the single standard deduction is $16,100 under IRS Revenue Procedure 2025-32. A standard deduction is the amount many taxpayers can subtract from income before federal income tax is calculated. It is only one part of the tax picture: some Social Security benefits may be taxable, and traditional retirement-account withdrawals usually count as taxable income.

Early on, your savings rate matters most

Your savings rate is the percentage of income you direct to retirement. When the balance is still small, an extra dollar saved often matters more than squeezing out a slightly better investment return. Investment selection matters, but saving consistently, using a diversified low-cost approach and avoiding panic decisions give compounding more money and time to work. Compounding means your returns can begin earning returns of their own.

These plain-language benchmarks are starting points, not judgments:

If those percentages feel impossible, start lower and automate a small increase each year. First contribute enough to capture your full employer match if one is offered; the match is money your employer adds when you contribute. See how much employer money may be available with the 401(k) match calculator. Your pay stub and benefits portal show your current contribution rate, while your plan’s summary document explains the match formula.

After 50, tax rules give you more room to save

IRS rules allow people age 50 and older to make catch-up contributions—extra deposits above the normal annual limit—to workplace plans such as 401(k)s and to IRAs. Some workplace plans also have a larger catch-up window for certain older ages under current law. The exact limits can change from year to year, so check the IRS limit for the year you contribute and confirm what your plan allows.

You do not have to fill every available dollar for the rule to help. A catch-up contribution can be as simple as directing part of a raise, bonus or paid-off car payment into retirement. If high-interest debt is consuming your budget, compare the guaranteed interest you avoid by paying it down with the benefit of saving more. The goal is a sustainable plan, not a contribution that forces you to borrow again.

Plan for health care separately

Medicare is federal health insurance generally available beginning at age 65, but it is not free and it does not cover everything. Retirees may pay Medicare premiums, deductibles, copayments, prescription costs, dental and vision expenses, supplemental coverage and long-term care. A premium is the regular price of insurance; a deductible is what you may pay before coverage begins paying its share.

These expenses can become a six-figure lifetime cost for a retired household. Health prices may also rise faster than general inflation, so simply hiding health care inside one broad spending estimate can understate the need. Build a separate health budget, test higher inflation and keep room for out-of-pocket costs—the portion insurance does not pay.

Estimate Medicare and retiree health costs separately. For current numbers, look at your employer’s retiree-benefit materials, your Medicare coverage documents if you are enrolled, and actual pharmacy and medical statements. If you will retire before 65, price the bridge from employer coverage to Medicare rather than assuming today’s workplace premium continues.

RMDs are withdrawals the tax code requires

RMD stands for required minimum distribution. Starting at age 73 for many current retirees, the IRS generally requires annual withdrawals from traditional retirement accounts, including traditional IRAs and many workplace plans. “Traditional” means contributions may have received a tax break earlier, so the withdrawal is generally taxed as ordinary income later.

The amount is based mainly on the account balance at the end of the previous year and an IRS life-expectancy factor. You can withdraw more than the minimum, but not less without risking a penalty. Roth IRAs generally do not require lifetime distributions from the original owner, although inherited-account rules are different.

Estimate a required withdrawal with the RMD calculator, and verify the account balance on your December 31 statement. RMD and tax rules depend on account type and birth year, so check current IRS guidance before acting.

What to do 10 years out versus 1 year out

Documents to gather and references to trust

You do not need a thick binder. Collect your latest 401(k), 403(b), IRA and pension statements; a recent pay stub; your Social Security Statement; one year of bank and credit-card transactions; and current health-insurance documents. Those pages hold the balances, contribution rates, employer match, income estimates and premiums a useful projection needs.

• Social Security Administration (SSA.gov) — personal benefit estimates, claiming rules and the guideline that benefits replace roughly 40% of pre-retirement earnings for an average earner.
• Internal Revenue Service, Revenue Procedure 2025-32 — the 2026 single standard deduction of $16,100.
• Internal Revenue Service — annual contribution limits, catch-up rules and required minimum distribution guidance. Check the current tax year before making a decision.

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