Retirement
Quick Definition
Retirement is the stage of life when you stop earning a paycheck from work and instead support yourself through savings, investments, pensions, and government benefits like Social Security. Reaching a comfortable retirement requires decades of saving, investing, and planning so that your accumulated assets can replace your working income.
What It Means
Retirement is the single largest financial goal most people will ever pursue. You are trying to fund 20 to 30 years of living expenses without a salary, which means the math has to work over a very long horizon. Americans now live longer than ever, with more than a quarter of adults surveyed in 2026 believing they will live to 100, according to Northwestern Mutual's Planning and Progress study. That means a retirement starting at 62 could last 38 years, and the money has to keep up with inflation the entire time.
The financial services industry measures how prepared people are for this goal, and the data is sobering. Fidelity's Q1 2026 retirement analysis found that the average 401(k) balance was $141,000, down 4 percent from the prior quarter due to market volatility. The average IRA balance was $131,380. Those averages hide enormous variation by age. Fidelity's Q2 2026 data shows average 401(k) balances of $7,700 for workers aged 20 to 24, $51,700 for those 30 to 34, $120,100 for those 40 to 44, and $260,800 for those 55 to 59. The peak comes at ages 65 to 69 at $258,800.
The Employee Benefit Research Institute's 2026 Retirement Confidence Survey found a persistent gap between expectations and reality. Workers report a median expected retirement age of 65, while retirees say they actually retired at a median age of 62. Nearly four in 10 workers expect to retire at 70 or older or not at all, while only 10 percent of retirees report that being the case. This gap means many people are forced out of the workforce earlier than planned, often due to health problems, layoffs, or caregiving responsibilities.
Northwestern Mutual's 2026 study found that Americans believe they need $1.46 million, on average, to retire comfortably. That figure jumped 15 percent from the $1.26 million reported in 2025. Yet 46 percent of non-retirees say they do not expect to be financially prepared when the time comes. The gap between what people think they need and what they have saved is the central problem of retirement planning.
How It Works
The Three-Legged Stool
Retirement income traditionally rests on three sources:
Government benefits: Social Security and Medicare. Social Security provides a monthly benefit based on your 35 highest-earning years, adjusted for inflation each year. The 2026 cost-of-living adjustment was 2.8 percent, raising the maximum benefit at full retirement age to $4,152 per month. The maximum benefit at age 62 is $2,969, and at age 70 it is $5,181. Medicare covers hospital and medical insurance starting at age 65.
Employer-sponsored retirement plans: 401(k) plans, 403(b) plans, pensions, and similar workplace benefits. The 2026 employee contribution limit for 401(k) plans is $24,500, or $32,500 with catch-up contributions for those 50 and older. Workers aged 60 to 63 can contribute up to $35,750 under the SECURE 2.0 enhanced catch-up provision. Total retirement assets in the United States reached $47.6 trillion in Q1 2026, according to the Investment Company Institute, with $9.9 trillion held in 401(k) plans.
Personal savings and investments: IRAs, taxable brokerage accounts, real estate, and other assets. IRAs held $18.2 trillion at the end of Q1 2026. The 2026 IRA contribution limit is $7,500, or $8,600 for those 50 and older.
Social Security Timing
When you claim Social Security has a massive impact on lifetime benefits. You can claim as early as age 62, but your monthly benefit is permanently reduced. If you wait until your full retirement age (67 for most people retiring today), you receive your full benefit. If you delay until age 70, your benefit increases by 8 percent per year beyond your full retirement age.
| Claim Age | Monthly Benefit (2026 max) | Annual Income | Lifetime (to age 85) |
|---|---|---|---|
| 62 | $2,969 | $35,628 | $820,444 |
| 67 (FRA) | $4,152 | $49,824 | $996,480 |
| 70 | $5,181 | $62,172 | $932,580 |
The break-even age for delaying from 62 to 70 is roughly age 80 to 82. If you expect to live past that point, delaying pays off. If you have health concerns or an urgent need for income, claiming earlier may make sense. Use our Social Security estimator to model your own benefit based on your earnings record.
Required Minimum Distributions
Once you reach a certain age, the IRS forces you to start withdrawing from tax-deferred retirement accounts. Under SECURE 2.0, the required minimum distribution (RMD) age depends on your birth year:
| Birth Year | RMD Age |
|---|---|
| 1950 or earlier | 70.5 |
| 1951 to 1959 | 73 |
| 1960 or later | 75 (effective 2033) |
For most people in 2026, RMDs begin at age 73. The first RMD can be delayed until April 1 of the year after you turn 73, but that means taking two RMDs in the same calendar year. Failing to take an RMD triggers a 25 percent excise tax on the shortfall, reduced to 10 percent if corrected within two years. Roth IRAs are not subject to RMDs during the original owner's lifetime, and Roth 401(k) RMDs were eliminated starting in 2024.
Healthcare in Retirement
Medicare does not start until age 65, so anyone retiring before 65 needs a plan for health insurance. Options include COBRA continuation coverage (up to 18 months), spousal coverage, the Affordable Care Act marketplace, or private plans. Healthcare costs in retirement are substantial. Fidelity estimates that a 65-year-old couple retiring in 2026 will need approximately $315,000 saved to cover medical expenses throughout retirement, excluding long-term care. This is separate from the nest egg needed for living expenses.
Real-World Examples
Example 1: The On-Track Saver
Maria, age 35, earns $85,000 and contributes 12 percent to her 401(k), with a 5 percent employer match. Her total annual contribution is $14,450. Her current balance is $82,000. Assuming 7 percent average annual return:
| Age | Projected Balance |
|---|---|
| 35 | $82,000 |
| 45 | $285,000 |
| 55 | $710,000 |
| 65 | $1,580,000 |
At 65, Maria could withdraw 4 percent annually, or about $63,200 per year, plus Social Security. That would replace roughly 74 percent of her pre-retirement income, which is close to the 75 to 85 percent replacement rate most advisors recommend.
Example 2: The Behind Saver
James, age 50, has $60,000 saved for retirement. He earns $70,000 and contributes 6 percent with a 3 percent match, for $6,300 per year. Even with catch-up contributions starting at 50, catching up is difficult:
| Age | Projected Balance (7% return) |
|---|---|
| 50 | $60,000 |
| 55 | $128,000 |
| 60 | $235,000 |
| 65 | $385,000 |
At 65, a 4 percent withdrawal gives James about $15,400 per year from savings, plus Social Security. He would need to work longer, save more aggressively, or reduce his expected retirement lifestyle. Read our guide on catch-up retirement savings in your 40s for strategies to close this gap.
Example 3: The Early Retiree
Sarah, age 55, has saved $1.2 million. She wants to retire now. She needs $48,000 per year from her portfolio (4 percent of $1.2 million). She will not have access to penalty-free 401(k) withdrawals until age 59.5, and Social Security does not start until 62 at the earliest. She needs a bridge strategy: taxable account withdrawals, a SEPP plan (substantially equal periodic payments under IRS Section 72(t)), or part-time income to cover the gap years. Read about the FIRE movement for more on early retirement strategies.
Key Points to Remember
- The median actual retirement age is 62, not 65 as most workers expect. Plan for the possibility of retiring earlier than you want.
- Americans say they need $1.46 million to retire comfortably in 2026, but the right number depends entirely on your spending, not a national average.
- Social Security replaces about 40 percent of pre-retirement income for average earners. The rest must come from savings.
- RMDs start at age 73 for most people in 2026. Missing one costs a 25 percent penalty on the shortfall.
- Healthcare before Medicare (age 65) is expensive and often overlooked in retirement planning.
- The 2026 401(k) contribution limit is $24,500, or $32,500 with catch-up. The IRA limit is $7,500, or $8,600 with catch-up.
- Fidelity recommends having 1x your salary saved by 30, 3x by 40, 6x by 50, and 8x by 60 to stay on track.
Common Mistakes to Avoid
- Claiming Social Security at 62 without running the numbers: The permanent reduction in monthly benefits can cost tens of thousands of dollars over a lifetime. Model the break-even age before deciding.
- Ignoring healthcare costs before Medicare: If you retire at 60, you need five years of private health insurance, which can cost $1,000 to $2,000 per month or more.
- Underestimating how long you will live: Planning for a 20-year retirement when you might live 30 or more years creates a real risk of running out of money. Plan for age 95 or 100.
- Not accounting for inflation: A $50,000 annual withdrawal today will need to be about $96,000 in 25 years just to maintain the same purchasing power at 2.5 percent inflation.
- Cashing out a 401(k) when changing jobs: Even a small $10,000 balance cashed out at age 30 costs roughly $75,000 in lost retirement savings at age 65, assuming 7 percent returns.
- Forgetting to name or update beneficiaries: Retirement accounts pass by beneficiary designation, not your will. Outdated beneficiaries can send your savings to an ex-spouse instead of your current family.
Related Concepts
Retirement connects to several other financial concepts you should understand. Retirement planning is the active process of figuring out how much you need and how to get there. The safe withdrawal rate and your withdrawal rate determine how much income your portfolio can generate in retirement. Most retirement savings grow through compound interest inside tax-advantaged accounts. Your asset allocation shifts over time, typically becoming more conservative as you approach retirement. Many savers use target-date funds to automate that shift. If you have a pension, understand its vesting schedule and payout options. For estate purposes, make sure your beneficiary designations are current and consider estate planning to protect what you have built. Use our retirement number calculator to estimate your target, and read our guides on how much you need to retire, building a retirement income plan from scratch at 45, and the honest truth about retiring at 55.
Frequently Asked Questions
Q: At what age can I retire? A: You can retire at any age you can afford to. Penalty-free withdrawals from retirement accounts start at 59.5. Social Security can start as early as 62 (reduced) or as late as 70 (increased). Medicare starts at 65. The age you can actually afford to retire depends on your savings, spending, and health insurance options.
Q: How much money do I need to retire? A: A common guideline is 25 times your annual retirement expenses, based on the 4 percent rule. If you plan to spend $60,000 per year in retirement, you need about $1.5 million. This does not include Social Security, which reduces the amount you need to withdraw from your portfolio. Use our retirement number calculator for a personalized estimate.
Q: What happens if I retire before age 59.5? A: You cannot take penalty-free withdrawals from tax-deferred retirement accounts before 59.5 without an exception. Options include using a taxable brokerage account, setting up substantially equal periodic payments (SEPP under IRS Section 72(t)), or using the rule of 55 if you separate from service at 55 or later and your plan allows it. Roth IRA contributions (but not earnings) can be withdrawn at any age without penalty.
Q: When do I have to start taking required minimum distributions? A: For most people in 2026, RMDs begin at age 73. If you were born in 1960 or later, your RMD age will be 75 starting in 2033. The first RMD can be delayed until April 1 of the following year. See the IRS RMD FAQ page for full details.
Q: Can I live on Social Security alone? A: Social Security replaces about 40 percent of pre-retirement income for average earners and 27 percent for high earners. The maximum monthly benefit at full retirement age in 2026 is $4,152, or about $49,800 per year. Most people cannot maintain their lifestyle on Social Security alone. The Social Security Administration publishes annual benefit figures to help you estimate your benefit.
