A retirement plan that needs to last 30 or more years can succeed or fail based on its structure. Account types, contribution levels, asset allocation, tax treatment and withdrawal sequencing will determine how much you keep, how long it lasts and how much goes to taxes. That is why the decisions you make when setting up a retirement investment account now will compound over decades in ways that may be difficult to fix later. Here are five general steps to help you get started.
A financial advisor can help you structure your retirement accounts, sequence your withdrawals and build a plan designed to last as long as you need it to.
Step 1: Define Your Retirement Income Target and Timeline
Before choosing any account or investment, the plan needs a destination. The right savings rate and asset allocation depend on the income target and the years available to reach it.
A commonly used starting benchmark is replacing 70% to 80% of pre-retirement income, though actual needs vary significantly. Someone who owns their home outright and plans to live modestly may need less. Someone with significant healthcare costs or travel plans may need more. According to a 2026 Northwestern Mutual Planning and Progress study, Americans believe they will need $1.46 million on average to retire comfortably, up more than 15% from prior year estimates.
The timeline to retirement determines how aggressively to save and how much risk the portfolio can absorb. Someone 30 years from retirement has very different priorities than someone 10 years out, and the strategy should reflect that. Social Security benefits, pensions and any other guaranteed income sources reduce the gap. Estimating those benefits early allows for more precise planning around your investment portfolio. Factor in longevity as well, since retirement can last 30 years or more and medical expenses typically rise with age.
What is the overall strategy? Subtract your guaranteed income sources from your total retirement income need to establish the specific gap your portfolio has to close. Every savings and investment decision that follows should be built around that number.
Why it matters for your plan: Without a specific income gap to close, contribution rates and account choices default to rules of thumb that may leave you oversaved in the wrong accounts or undersaved overall.
Step 2: Choose the Right Retirement Accounts and Maximize Contributions
Most financial planners advise capturing the full employer match in a 401(k) before directing additional savings elsewhere. The match represents an immediate 50% to 100% return on the matched portion of contributions. No other investment decision can match that kind of guaranteed initial return.
For 2026, the key contribution limits are:
- 401(k) employee contribution: $24,500
- IRA contribution: $7,500
- Combined annual shelter: over $32,000, or $40,600 with catch-up contributions for those age 50 and older 1
The choice between traditional and Roth accounts depends on whether current or future tax rates are expected to be higher. Traditional contributions reduce taxable income today, while Roth contributions are made with after-tax dollars. Their growth, and withdrawals, becomes tax-free in retirement. Roth accounts tend to offer a long-term advantage early in your career. The tax paid on contributions today is likely lower than during higher-earning retirement years.
A notable 2026 rule change affects higher earners. Starting in 2026, if an employee’s FICA wages exceeded $145,000 in the prior year, all catch-up contributions to employer-sponsored plans must be designated as Roth rather than pre-tax. 2 This effectively creates a forced Roth savings vehicle for higher earners making catch-up contributions.
Workers without access to an employer plan, or those wanting additional tax-advantaged savings beyond a 401(k), can contribute to a traditional or Roth IRA subject to income limits for Roth eligibility. Self-employed workers have access to SEP IRAs and solo 401(k)s with substantially higher contribution limits. Health Savings Accounts (HSAs) also deserve consideration for workers in high-deductible health plans. These contributions are tax-deductible, growth is tax-free, and qualified medical withdrawals are tax-free. After age 65, the IRS taxes HSA withdrawals as ordinary income. This makes the account function similarly to a traditional IRA for non-medical expenses.
What is the overall strategy? Sequence your contributions in the order that produces the highest guaranteed return first, starting with the employer match, then fill tax-advantaged accounts in whichever order best fits your current tax rate relative to what you expect to pay in retirement.
Why it matters for your plan: The sequencing decision made here determines how much of your savings goes to taxes during the withdrawal phase, which has more impact on lifetime retirement income than the investments held inside those accounts.
Step 3: Build an Asset Allocation Strategy That Reflects Your Timeline
Your asset allocation strategy governs the ongoing investments within your retirement plan. How you diversify your retirement portfolio across stocks, bonds, and cash equivalents determines both the expected return and the volatility of the portfolio over time. Getting it right typically matters more than which specific funds or stocks fill each bucket.
Allocation should evolve across the working life and into retirement:
- Early career (20+ years out): An equity allocation of 80-90% is typical. It reflects the long time horizon and ability to recover from short-term declines before retirement.
- Mid-career (10-20 years out): A gradual shift toward a more balanced allocation as the recovery window shrinks.
- Pre-retirement (within 10 years): A meaningful reduction in equity exposure. This protects against sequence-of-returns risk, which is the danger that a sharp decline near retirement permanently impairs the portfolio.
- Retirement: Continued equity exposure with a steadily declining percentage as the retirement period progresses, since portfolios still need to grow to support 30+ years of withdrawals.
Another popular approach involves keeping three to five years of expected spending in laddered short-term U.S. Treasuries. This bond ladder allows the stock portion of the portfolio to recover during downturns without forcing the sale of equities at depressed prices to fund living expenses.
Target-date funds automate this glide path by adjusting the stock-to-bond ratio based on an expected retirement year. This makes them a practical option for investors who prefer not to manage allocation manually. The main limitation is that they apply a generic glide path that may not match any individual’s specific needs or risk tolerance, so investors with unusual circumstances may benefit from customizing their allocation rather than defaulting to a target-date fund.
What is the overall strategy? Match your equity exposure to your time horizon at every stage, keeping growth high enough to build the portfolio early and reducing volatility risk close enough to retirement that a market downturn cannot permanently derail the income the plan was built to deliver.
Why it matters for your plan: A portfolio that carries too much equity risk into retirement and suffers a significant decline in the first few years of withdrawals may never fully recover, regardless of what the market does afterward.
Step 4: Build in Tax Diversification Across Account Types
Tax diversification means holding assets across traditional, Roth, and taxable accounts simultaneously so that withdrawals in retirement can be sequenced to minimize the total tax burden across the full retirement period. The three account types are taxed very differently when withdrawn:
- Traditional 401(k) and IRA: withdrawals taxed as ordinary income
- Roth 401(k) and Roth IRA: withdrawals tax-free
- Taxable brokerage accounts: long-term gains taxed at preferential capital gains rates
The order in which these accounts are tapped determines how much income is kept after taxes. A retiree with balances in all three buckets has flexibility to manage taxable income year by year, while a retiree concentrated entirely in traditional accounts is forced to take all withdrawals at ordinary income rates regardless of need.
Roth conversions during low-income years can substantially reduce lifetime tax burden. The period between retirement and the start of Social Security or required minimum distributions (RMDs) is often the lowest-tax window of a person’s life, and converting traditional balances to Roth during that window shifts future withdrawals from taxable to tax-free. Roth IRAs and Roth 401(k) balances are also not subject to required minimum distributions, which makes them valuable both for managing taxable income in later retirement years and for estate planning.
Required minimum distributions begin at age 73 for most retirement accounts. Failing to take the full RMD results in a 25% penalty on the amount not withdrawn, which can be reduced to 10% if corrected within the two-year correction window per IRS guidance. 3
What is the overall strategy? Accumulate balances across traditional, Roth and taxable accounts during your working years so you can control how much taxable income you generate each year in retirement rather than having the account structure make that decision for you.
Why it matters for your plan: A retiree with only traditional pre-tax accounts pays ordinary income tax on every dollar withdrawn and has no way to manage bracket exposure, Medicare premium surcharges or the taxability of Social Security benefits year by year.
Step 5: Monitor, Rebalance and Adjust the Plan Over Time
A retirement investment plan is not a one-time document. It requires periodic review and adjustment as income changes, life circumstances shift, and market performance moves the portfolio away from its target allocation.
Rebalancing restores the intended asset allocation when one asset class becomes overrepresented. Selling the outperforming asset and buying the underperforming one imposes a systematic discipline of buying low and selling high that many investors fail to maintain emotionally. Rebalancing inside tax-advantaged accounts like IRAs and 401(k)s does not trigger taxes, which makes those accounts the most efficient place to do most of the rebalancing work. In taxable accounts, selling appreciated assets creates capital gains, which can be managed by directing new contributions and dividends toward underweight asset classes rather than selling overweight ones.
Savings benchmarks by age provide a useful checkpoint:
- 1x annual income saved by age 30
- 3x by age 40
- 6x by age 50
- 10x by age 67
These benchmarks are guidelines rather than requirements, but falling significantly short of them is a signal to increase the savings rate, adjust the retirement timeline, or both.
Major life events warrant a plan review outside the normal annual cadence. Job changes with different benefit structures, marriage or divorce, inheritances, health events, and the approach of the target retirement date each justify a fresh look at the plan to ensure the strategy still fits the current situation and goals. An annual review covering contribution levels, allocation drift, beneficiary designations, and progress against savings benchmarks helps catch issues before they compound.
What is the overall strategy? Catch allocation drift, measure progress against savings benchmarks and adjust contributions or timelines before small gaps become structural problems that require more significant course corrections later.
Why it matters for your plan: A plan that was well-structured at 35 and never revisited can arrive at 60 with the wrong allocation, outdated beneficiary designations and a savings gap that required far less effort to fix ten years earlier than it does now.
Bottom Line
The earlier you start building a retirement plan, the more flexibility you will have to adjust contributions, shift allocations and recover from setbacks. But, the closer you get to retirement, the more the decisions you made years ago will determine what options are still available.
“Investors within 10 years of retirement should strongly consider consulting a financial advisor to assess their retirement readiness,” said Loudenback, CFP®. “Advisors have access to sophisticated software that lets them model out different scenarios and see the probability of success when different levers, from savings rate to withdrawal strategies, are adjusted.”
Tanza Loudenback, Certified Financial Planner™ (CFP®), provided the quote used in this article. Please note that Tanza is not a participant in SmartAsset AMP, is not an employee of SmartAsset and has been compensated. The opinion voiced in the quote is for general information only and is not intended to provide specific advice or recommendations.
Retirement Planning Tips
- A financial advisor can model where your plan stands today and show you what needs to change before retirement to improve your odds of getting there on your terms. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your nest egg could grow over time, SmartAsset’s retirement calculator could help you get an estimate.
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