Curated by: Rubric Advisors
Retirement Planning
Retirement 101
A beginner's guide to retirement planning, covering the power of compound interest, key account types, employer matching, and how to get started saving early.
Retirement 101
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The Power of Compound Interest
- Compound interest means your investment earnings generate their own earnings, accelerating wealth growth over time
- Starting at age 25 instead of 35 with $500 per month at 7% returns yields roughly $600,000 more by age 65
- Time in the market is the single most important factor in building retirement wealth, not timing the market
- Even small increases in your savings rate today have an outsized impact on your balance decades from now
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Full Guide
The Power of Compound Interest
- Compound interest means your investment earnings generate their own earnings, accelerating wealth growth over time
- Starting at age 25 instead of 35 with $500 per month at 7% returns yields roughly $600,000 more by age 65
- Time in the market is the single most important factor in building retirement wealth, not timing the market
- Even small increases in your savings rate today have an outsized impact on your balance decades from now
401(k) Basics
- A 401(k) is an employer-sponsored retirement plan that lets you save pre-tax or Roth dollars from your paycheck
- Pre-tax contributions reduce your taxable income now and are taxed as ordinary income when withdrawn in retirement
- Roth 401(k) contributions use after-tax dollars, but qualified withdrawals in retirement are completely tax-free
- The 2025 employee contribution limit is $23,500, with an additional $7,500 catch-up for those age 50 and older
- Funds are generally not accessible without penalty before age 59 and a half, with limited exceptions
Roth IRA Fundamentals
- A Roth IRA is an individual retirement account funded with after-tax dollars that grows and can be withdrawn tax-free
- The 2025 contribution limit is $7,000, or $8,000 if you are age 50 or older
- Income limits apply: single filers begin phasing out at $150,000 and married filing jointly at $236,000 for 2025
- Roth IRA contributions can be withdrawn at any time without taxes or penalties, providing flexibility
- The backdoor Roth IRA strategy allows high earners to contribute indirectly through a traditional IRA conversion
Maximize Your Employer Match
- Many employers match a percentage of your 401(k) contributions, commonly 50% of the first 6% you contribute
- Not contributing enough to receive the full match is equivalent to leaving free money on the table
- Employer matches are always made with pre-tax dollars regardless of whether you elect Roth contributions
- Some employers use a vesting schedule where you must stay for two to six years to keep the full match
- At minimum, contribute enough to capture 100% of your employer match before funding other savings goals
Getting Started: A Simple Framework
- Step one: contribute at least enough to your 401(k) to get the full employer match
- Step two: if eligible, max out a Roth IRA for tax-free growth and withdrawal flexibility
- Step three: increase 401(k) contributions toward the annual maximum as your income allows
- Step four: invest in a diversified target-date fund or balanced portfolio appropriate for your retirement timeline
- Aim to save at least 15% to 20% of your gross income for retirement including employer contributions
Key Takeaways
- Start saving as early as possible because compound interest rewards time more than any other factor
- Always contribute enough to capture the full employer match in your 401(k) before other savings goals
- Understand the tax treatment differences between pre-tax 401(k), Roth 401(k), and Roth IRA accounts
- Automate your contributions so saving happens consistently without requiring ongoing willpower
- A financial advisor can help you determine the right savings rate and investment allocation for your specific goals
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