Looking forward to a comfortable retirement? Saving is a great start.
We recommend you save 12% to 15% of your pay each year for retirement, including employer contributions if you're investing in a retirement plan at work.
An IRA can offer tax benefits, either immediately or when you withdraw from it. If you're not covered by an employer retirement plan, you can deduct the entire amount of a traditional IRA contribution on your income tax return. If you are covered by a retirement plan, your income will determine whether your contribution is deductible.
If you participate in a 401(k) at work, consider opening a Roth IRA. A Roth IRA offers tax-free growth now and tax-free withdrawals in retirement—which, down the road, could help you develop a tax-effective strategy for withdrawing from your retirement accounts.
For both traditional and Roth IRAs, the annual contribution limits for the 2022 tax year are $6,000 for those younger than 50 and $7,000 for those age 50 and older. The annual contributions for the 2023 tax year are $6,500 for those younger than 50 and $7,500 for those age 50 and older.
For both traditional and Roth 401(k)s, the annual contribution limits for the 2022 tax year are $20,500 for those younger than 50 and $27,000 for those age 50 and older. For the 2023 tax year, they are $22,500 for those younger than age 50 and $30,000 for those age 50 and older.
Piecing together an effective retirement plan can be complicated, involving a series of decisions that require research and information—and you should maintain and update your plan as your circumstances, your investments, and regulations change. A Vanguard personal advisor will develop a customized retirement plan that's based on your goals and financial situation, then guide and coach you as much as you want, giving you the confidence that you're doing all you can to reach your goals.
As you approach retirement, it's important to have a clear, accurate picture of your complete investment portfolio. If your portfolio is spread out among several investment companies, collecting and keeping track of all that information will become more difficult. If you consolidate your accounts at Vanguard, you'll get simplified reporting, low costs, and the opportunity to save on fees—all from a company you already trust.
In retirement, you'll likely spend less on payroll taxes, income taxes, and your work wardrobe. But you might spend more on hobbies or travel. And if you receive medical insurance through your employer, medical insurance in retirement is one expense you'll have to plan for.
Ideally, you'd head into retirement debt-free … but in the real world that's not always possible. So it may be okay for you to retire before you pay off your mortgage, cars, or credit cards. Just make sure you understand the implications of retiring with debt and have a plan to pay it off.
If your fixed expenses exceed your monthly income or if you're concerned about outliving the money you've saved for retirement, think about annuitizing part of your retirement savings. An annuity is an insurance contract that provides payments in exchange for an investment. Converting part of your retirement savings to an annuity would provide you with periodic payments during your retirement years. The payments could continue for your lifetime or for an agreed-upon number of years. Deferred variable annuities (which don't begin paying until you reach a certain age) can also offer tax benefits for retirement savers.
Among your considerations should be how to make your savings last for the duration of your retirement, how to make tax-efficient withdrawals, and whether you need to take required minimum distributions (RMDs) from your IRA or 401(k).
At age 59½, you can withdraw from your IRA and 401(k) without incurring the 10% federal early withdrawal penalty. By law, you must start taking taxable RMDs from your retirement accounts no later than April 1 of the year after the year you reach RMD age. If you don't, you could owe a penalty of up to 50% on the amount you should have withdrawn.
Due to changes to federal law that took effect on January 1, 2023, the age at which you must begin taking RMDs differs depending on when you were born.
When you turn age 73*, the IRS will require you to begin taking withdrawals from certain types of retirement accounts (in most cases, it doesn't matter when you actually retire). Calculating these required minimum distributions (RMDs) can be tricky, but we can help.
- Medicare is a federal health insurance program. At age 64 and 9 months, you have a 7-month initial Medicare sign-up window; if you miss it, you may have to pay higher premiums for life. But if you still have medical insurance provided by an employer (including your spouse's employer), you can postpone enrolling in Medicare until that coverage ends without having to pay higher premiums later. Medicare coverage can begin as early as the first day of the month in which you turn 65.
- Medigap is Medicare supplemental insurance; it's private insurance that covers some of the out-of-pocket copays and deductibles of Medicare. The 6-month enrollment window for Medigap begins on the first day of the month in which you turn 65. During this enrollment window, you can't be denied Medigap coverage or charged extra because of poor health. But if you miss the enrollment deadline, you may pay higher premiums for life or even be denied coverage.
Choosing a realistic retirement age isn't necessarily an easy task, but we can offer some practical tips.
Find out when you might have enough to retire
See how your retirement age affects your Social Security benefits
The age at which you start collecting Social Security will determine how much you'll collect. You're eligible to receive reduced benefits at age 62. But at age 66–67, you'll reach Social Security full retirement age (FRA), the age at which you qualify for your full Social Security retirement benefits. And if you wait to claim your benefits beyond your FRA, their value will continue to increase each month you delay until you reach age 70. As shown in the chart below, your FRA depends on the year you were born:
| Year of birth | Full retirement age |
| 1943–1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
| Year of birth | Full retirement age |
| 1943–1954 | 66 |
| 1955 | 66 and 2 months |
| 1956 | 66 and 4 months |
| 1957 | 66 and 6 months |
| 1958 | 66 and 8 months |
| 1959 | 66 and 10 months |
| 1960 or later | 67 |
*Due to changes to federal law that took effect on January 1, 2023, the age at which you must begin taking RMDs differs depending on when you were born. If you reached age 72 on or before December 31, 2022, you were already required to take your RMD and must continue satisfying that requirement. However, if you had not yet reached age 72 by December 31, 2022, you must take your first RMD from your traditional IRA by April 1 of the year after you reached age 73.
All investing is subject to risk, including the possible loss of the money you invest.
Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.
The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.
VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.
We recommend that you consult a tax or financial advisor about your individual situation.