When Retirement Savings Finally Got Real
Disclaimer & Personal Context (2025)
These notes reflect my personal thinking and understanding as of 2025 and are shared for educational and reflective purposes only—not as financial advice. I began saving for retirement at age 23 through a 401(k), but made the mistake of cashing it out when changing jobs, assuming I had plenty of time to restart. In hindsight, that was one of my worst financial decisions.
I opened a new 401(k) at 27 and made a second misstep by misunderstanding asset allocation. Instead of using a target-date fund, I self-managed and allocated roughly 40% to bonds and other lower-risk investments, which significantly reduced long-term growth. By age 30, after finally learning the fundamentals of retirement investing, I shifted fully into a target-date fund to better align with long-term equity returns, closer to historical S&P 500 performance of roughly 10% annually.
Looking back, I effectively lost seven of the most critical compounding years—ages 23 to 30. That realization reshaped my approach. Today, I’m maxing out my 401(k) and intentionally maintaining a higher-growth, higher-volatility allocation aligned with broad market indexes, recognizing that with decades remaining before age 67, time is still my greatest asset.
Table of Contents
- Types of Tax Advantaged Accounts
- Historical Contribution Limits (401(k) & IRAs)
- Benchmark Savings Goals by Age
- Average & Median 401(k) Balances
- Investment Funds
- Rule of 72
- Inflation’s Impact
- Average Life Expectancy
- Balancing Money & Life
- My Personal Retirement Journey
- Mega Backdoor Roth
- Medical Expenses (Medicare)
1. Types of Tax Advantaged Accounts
This isn't an exhaustive list as there are other types of retirement accounts and methods. This is just my personal list of what I understood are the more common types that most people will encounter. For me, I was introduced to retirement planning through a 401(k) and then the Roth IRA.
There are countless strategies on how to utilize these options and also in what sequence to stack them for maximizing benefit. While those are all good, the main point is to start saving and investing then worry about maximizing later; you can't maximize what you don't have.
The main thing to learn is the difference between Pre-Tax like a traditional 401k vs. After-Tax Roth-IRA. There are many reasons to choose either, one reason are for those who anticipate a higher tax bracket later in their career and rather 'pay now' at their lower tax rate. This is most useful for those utilizing a Mega Backdoor Roth strategy via a 401k.
| Account Type | 2025 Contribution Limit | Tax Treatment | RMD Rules | Notes |
|---|---|---|---|---|
| 401(k) | $23,500 + catch-up ($7,500 age 50+; $11,250 age 60–63) | Pre-tax (Traditional) or After-tax (Roth if offered) | RMDs start at age 73 (with exceptions) | Employer match doesn’t count toward your limit but does toward total contributions |
| Traditional IRA | $7,000 + $1,000 catch-up | Pre-tax (deductible depending on income) | RMDs start at age 73 | Lower limit but flexible investments |
| Roth IRA | $7,000 + $1,000 catch-up | After-tax, tax-free withdrawals | No RMDs for original owner | Income limits apply |
| 403(b) | $23,500 + same catch-ups as 401(k) | Similar to 401(k) | RMDs apply | For nonprofits/education employers |
| SEP-IRA / SIMPLE IRA | SEP: % of comp up to $73,000; SIMPLE: ~$16,500 | Pre-tax | RMDs apply | For small business/self-employed |
2. Historical Contribution Limits (401(k) & IRAs)
IRA's started in 1974 and while 401k's started in 1978 it was the 1980s when they formalized it into what we think of a 401k today. Catch-up contributions began in 2002 which become available at age 50.
For 2026 they created a new higher catch-up limit for those 60-63 allowing $11,250.
For those with higher income limits starting 2026, catch-up contributions may have to be treated as Roth 401k and if it's not offered as an option, no catch-up contributions can be made.
| Year | 401(k) Limit | 401(k) Catch-Up (50+) | IRA/Roth IRA Limit | IRA/Roth Catch-Up |
|---|---|---|---|---|
| 1975 | — | — | $1,500 | — |
| 1976 | — | — | $1,500 | — |
| 1977 | — | — | $1,500 | — |
| 1978 | — | — | $1,500 | — |
| 1979 | — | — | $1,500 | — |
| 1980 | — | — | $1,500 | — |
| 1981 | — | — | $2,000 | — |
| 1982 | — | — | $2,000 | — |
| 1983 | — | — | $2,000 | — |
| 1984 | — | — | $2,000 | — |
| 1985 | — | — | $2,000 | — |
| 1986 | — | — | $2,000 | — |
| 1987 | $7,000 | — | $2,000 | — |
| 1988 | $7,627 | — | $2,000 | — |
| 1989 | $7,979 | — | $2,000 | — |
| 1990 | $8,475 | — | $2,000 | — |
| 1991 | $8,728 | — | $2,000 | — |
| 1992 | $8,994 | — | $2,000 | — |
| 1993 | $9,240 | — | $2,000 | — |
| 1994 | $9,240 | — | $2,000 | — |
| 1995 | $9,240 | — | $2,000 | — |
| 1996 | $9,500 | — | $2,000 | — |
| 1997 | $9,500 | — | $2,000 | — |
| 1998 | $10,000 | — | $2,000 | — |
| 1999 | $10,000 | — | $2,000 | — |
| 2000 | $10,500 | — | $2,000 | — |
| 2001 | $10,500 | — | $2,000 | — |
| 2002 | $11,000 | $1,000 | $3,000 | $500 |
| 2003 | $12,000 | $2,000 | $3,000 | $500 |
| 2004 | $13,000 | $3,000 | $3,000 | $500 |
| 2005 | $14,000 | $4,000 | $4,000 | $500 |
| 2006 | $15,000 | $5,000 | $4,000 | $1,000 |
| 2007 | $15,500 | $5,000 | $4,000 | $1,000 |
| 2008 | $15,500 | $5,000 | $5,000 | $1,000 |
| 2009 | $16,500 | $5,500 | $5,000 | $1,000 |
| 2010 | $16,500 | $5,500 | $5,000 | $1,000 |
| 2011 | $16,500 | $5,500 | $5,000 | $1,000 |
| 2012 | $17,000 | $5,500 | $5,000 | $1,000 |
| 2013 | $17,500 | $5,500 | $5,500 | $1,000 |
| 2014 | $17,500 | $5,500 | $5,500 | $1,000 |
| 2015 | $18,000 | $6,000 | $5,500 | $1,000 |
| 2016 | $18,000 | $6,000 | $5,500 | $1,000 |
| 2017 | $18,000 | $6,000 | $5,500 | $1,000 |
| 2018 | $18,500 | $6,000 | $5,500 | $1,000 |
| 2019 | $19,000 | $6,000 | $6,000 | $1,000 |
| 2020 | $19,500 | $6,500 | $6,000 | $1,000 |
| 2021 | $19,500 | $6,500 | $6,000 | $1,000 |
| 2022 | $20,500 | $6,500 | $6,000 | $1,000 |
| 2023 | $22,500 | $7,500 | $6,500 | $1,000 |
| 2024 | $23,000 | $7,500 | $7,000 | $1,000 |
| 2025 | $23,500 | $7,500 | $7,000 | $1,000 |
| 2026 | $24,500 | $8,000 | $7,500 | $1,100 |
3. Benchmark Savings Goals by Age
Using an $80,000 annual salary as a reference point (roughly aligned with U.S. per-capita income of ~$76,000 in 2025), the commonly cited benchmark of 10× salary by age 67 translates to a target retirement balance of about $800,000.
| Age | Savings Target (× Salary) | Target in $ ($80k) |
|---|---|---|
| 30 | 1× | $80,000 |
| 40 | 3× | $240,000 |
| 50 | 6× | $480,000 |
| 60 | 8× | $640,000 |
| 67 | 10× | $800,000 |
I’m not yet at the spending phase of retirement, and there are entire books dedicated to withdrawal strategies and longevity planning. For simplicity, assume you want to replace 85% of your final salary in retirement—about $68,000 per year.
Under the widely referenced 4% withdrawal rule, an $800,000 portfolio could generate roughly $32,000 annually. The remainder would be supplemented by Social Security. For someone earning around $80,000 over their career, estimated benefits at full retirement age (67) might reasonably fall in the $2,700–$3,500 per month range. Using a conservative midpoint of $3,000 per month, that’s about $36,000 per year.
Combined, this yields approximately $68,000 annually, or 85% of the original $80,000 salary—a level often considered sufficient to maintain a similar standard of living in retirement.
I’m not yet at the spending phase of retirement, and there are entire books dedicated to withdrawal strategies and longevity planning. For simplicity, assume you want to replace 85% of your final salary in retirement—about $68,000 per year.
Under the widely referenced 4% withdrawal rule, an $800,000 portfolio could generate roughly $32,000 annually. The remainder would be supplemented by Social Security. For someone earning around $80,000 over their career, estimated benefits at full retirement age (67) might reasonably fall in the $2,700–$3,500 per month range. Using a conservative midpoint of $3,000 per month, that’s about $36,000 per year.
Combined, this yields approximately $68,000 annually, or 85% of the original $80,000 salary—a level often considered sufficient to maintain a similar standard of living in retirement.
| Income Source | Monthly Income | Annual Income | Notes / Assumptions |
|---|---|---|---|
| 401(k) / Retirement Savings | $2,667 | $32,000 | 4% withdrawal from $800,000 |
| Social Security | $3,000 | $36,000 | Based on lifetime $80,000 earnings |
| Total Retirement Income | $5,667 | $68,000 | 85% of final $80,000 salary |
This table highlights an often-missed point: the 10× salary benchmark does not mean your portfolio alone replaces your income. It assumes Social Security does a significant portion of the work. Without it, the required savings jump dramatically.
At a 4% withdrawal rate:
- $68,000/year would require $1.7M if fully self-funded
- $80,000/year would require $2.0M.
4. Average & Median 401(k) Balances vs Per Capita GDP
Vanguard’s data makes one thing clear: most savers are far below commonly cited retirement benchmarks. While average balances may appear respectable, they reflect a relatively small group of high savers and long-tenured workers. The median balances—where half of participants fall below—tell a much more sobering story.
Across every age group, median 401(k) balances fall well short of benchmark targets expressed as multiples of income. This strongly suggests that the majority of workers cannot realistically expect to fund retirement through a 401(k) alone, even by the later stages of their careers.
Framing balances as a percentage of roughly $80,000 in per-capita GDP adds context. By mid-career, median balances are often closer to 1× annual income or less, rather than the 3×–6× benchmarks typically recommended for ages 40–50. Even near retirement, median balances hover around 1.2× income, far below the commonly cited 8×–10× targets.
The implication isn’t that the benchmarks are wrong—but that they assume consistent, long-term, high-rate saving that only a minority of households achieve. For most people, retirement security will depend on a combination of Social Security, personal savings, home equity, and continued flexibility around spending or work—not solely on a tax-advantaged account.
| Age Group | Avg 401(k) | Median 401(k) | % of GDP (~$80k) |
|---|---|---|---|
| Under 25 | $6,899 | $1,948 | Avg ~9%; Median ~2% |
| 25–34 | $42,640 | $16,255 | Avg ~53%; Median ~20% |
| 35–44 | $103,552 | $39,958 | Avg ~130%; Median ~50% |
| 45–54 | $188,643 | $67,796 | Avg ~236%; Median ~85% |
| 55–64 | $271,320 | $95,642 | Avg ~339%; Median ~120% |
| 65+ | $299,442 | $95,425 | Avg ~374%; Median ~120% |
5. Investment Funds
For long horizons, diversified, low-cost index funds or target-date funds often outperform sporadic stock picking. Bonds / Cash while generally safer, the returns may lag behind inflation, meaning you are losing money.
| Type | What It Is | Pros / Cons |
|---|---|---|
| Target-Date Fund | A diversified portfolio that automatically shifts to lower risk as you near retirement | Simple, hands-off |
| Index Funds (e.g., S&P 500) | Broad market exposure | Low cost, historically strong long-term returns |
| Active Stock Picking | Selecting individual stocks | Can outperform, but higher risk & time commitment |
| Bonds / Cash | Fixed income / low volatility | Stability & income, but lower growth |
6. Rule of 72 & Compounding
The Rule of 72 is a simple way to estimate how long it takes an investment to double: divide 72 by your expected annual return.
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Example: At a 10% annual return, money doubles approximately every 7 years.
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Why it matters: Early contributions enjoy many doubling cycles over a lifetime, making even modest savings at a young age extremely powerful.
Personal Lesson: I effectively lost seven critical years of compounding (ages 23–30) due to cashing out my first 401(k) and suboptimal allocation. Consider the impact of a hypothetical $16,000 contribution at age 23 with 10% annual growth over 42 years:
| Age | Portfolio Value | Doubling Cycles |
|---|---|---|
| 23 | $16k | 0 |
| 30 | $32k | 1 |
| 37 | $64k | 2 |
| 44 | $128k | 3 |
| 51 | $256k | 4 |
| 58 | $512k | 5 |
| 65 | $1,028k | 6 |
This illustrates the exponential power of starting early: each doubling cycle magnifies the value, and missing even a few years early in your career can cost hundreds of thousands of dollars by retirement.
Starting early, even with small contributions, is far more impactful than starting late with large contributions.
7. Inflation’s Impact
At a 3% inflation rate, money’s purchasing power halves about every 24 years — meaning nominal balances must grow much faster just to keep pace with cost increases.
This is important to understand its impact on your investments as historical cash saving rates generally lagged behind or below inflation, similarly with higher quality bonds. Anytime your rate of return is equal or below inflation, you are actually losing money. View it as your bailing water out of a leaking boat. If the boat is leaking and taking on 3 gallons of water and you can only remove 2 gallons, eventually the boat sinks.
8. Average Life Expectancy
| Group | Men (Years) | Women (Years) | Planning Implication |
|---|---|---|---|
| Life Expectancy at Birth | 76 | 81 | Includes entire population from birth |
| Life Expectancy at Age 67 | 84 | 87 | Plan for ~17+ additional years |
9. Balancing Money & Life
Retirement planning isn’t only about maximizing numbers. You are essentially exchange time today (saving, working) for more optional time later (financial freedom). But since life stages offer different experiences, spending every moment deferring life can undermine the very lifestyle you are saving for.
Ultimately, how much you are willing to sacrifice in your younger years is a deeply personal decision. There is no one-size-fits-all answer. Some experiences carry more weight for certain people than others, and a good plan acknowledges both financial security and the value of living well along the way.
For some the benchmark of 15% of gross wages is one rule of thumb; especially if you start this earlier in life. Factoring many also participate in Social Security 12.4%, collectively you already could be putting away 27.4% of your gross income into retirement.
10. My Personal Retirement Journey
I understood investing at a basic level from a young age, but I didn’t really learn retirement planning until my first job introduced me to a traditional 401(k). I contributed up to the company match—free money—but made my most expensive mistake at 27 by cashing it out, thinking I had plenty of time to restart.
At my next job, I increased my contributions beyond the match but made another common error: misunderstanding target-date funds. I mixed my own conservative allocations with a target fund, not realizing the fund already handled diversification, which limited my growth.
By age 30, I realized I had wasted my first seven-year doubling. Since then, I’ve corrected course—maxing out my 401(k) and begun slowly increasing beyond that using a Mega Backdoor Roth, aiming for 5× by age 40, $1M by 45, and about $9.4M by 65.
That early mistake still matters. Missing the first doubling put every milestone about seven years behind. I could have reached $1M in my early 30s and nearly $20M by retirement. Inflation only sharpens the lesson: $9.4M at 65 may feel closer to $3.8M in today’s dollars. Starting early—even with small amounts—makes all the difference.
11. Mega Backdoor Roth
The Mega Backdoor Roth is an advanced retirement strategy that allows saving far beyond the standard 401(k) contribution limits. As of 2025, employee contributions to a 401(k) are capped at $23,500, but the total annual 401(k) limit—which includes employee contributions, employer match, and after-tax contributions—is $70,000.
Not all 401(k) plans support this strategy. For those with access, the Mega Backdoor Roth becomes especially valuable after maxing out normal 401(k) contributions and either fully funding a Roth IRA or exceeding Roth income limits.
The core idea is simple: once your regular pre-tax 401(k) and employer match are accounted for, any remaining space up to the $70,000 limit can be filled with after-tax contributions. Those after-tax dollars are then converted to Roth—where future growth becomes tax-free.
Example: 2025 Mega Backdoor Roth Contribution Breakdown
| Contribution Type | Tax Treatment | Amount | Counts Toward $70,000 Limit |
|---|---|---|---|
| Employee 401(k) Contribution | Pre-tax | $23,500 | Yes |
| Employer Match | Pre-tax | $4,000 | Yes |
| After-Tax 401(k) Contribution | After-tax | $42,500 | Yes |
| Total 401(k) Contributions | — | $70,000 | Max Allowed |
12. Medical Expenses (Medicare)
I won’t get too detailed into medical costs here, but this is an important area to understand as you approach retirement. The most common form of coverage for retirees is Medicare; however, it does not function like a typical employer-sponsored health plan. Notably, Medicare generally does not cover dental, vision, hearing care, or—most importantly—long-term care, which can become a major expense later in life.
It’s important to understand the various components of Medicare, including Parts A, B, C, and D, as well as optional Medigap coverage. You'll have to choose between 'Original Medicare' Part A and B, then add-on drug benefit Part D or go with Medicare Advantage 'Part C'. Original Medicare offers greater access to more doctors, but is more expensive and most get Medigap to hedge future expenses.
Equally important is recognizing Medicare’s cost structure. Original Medicare does not have an annual out-of-pocket maximum, meaning costs can accumulate without supplemental coverage. In addition, long-term care expenses—such as assisted living or nursing home care—are largely excluded and require separate planning and can reach $100,000 per year.
| Medicare Part | What It Is | Details |
|---|---|---|
| A | Hospital Insurance | Hospital care, short term nursing home, hospice and home health care. This doesn't cover long-term care. |
| B | Medical Insurance | Doctors, health care providers, outpatient care, medical equipment, wellness services. There is no max limit on deductible. |
| C | Medicare Advantage | Alternative to 'Original Medicare' from a private company. It can provide more benefits like Dental, vision, hearing, etc. |
| D | Drug coverage | Prescription drugs. |
Finally, Medicare premiums are income-based. Premiums for Parts B and D are determined by your Modified Adjusted Gross Income (MAGI) from prior years, and higher income levels can trigger IRMAA (Income-Related Monthly Adjustment Amount) surcharges. For higher-income retirees, these surcharges can significantly increase monthly premiums, making income and tax planning an important part of managing healthcare costs in retirement.
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