Retirement 101

Planning for the Retirement You Want

Today's 65-year-olds have a pretty good chance of making it to their mid-80s, and it's not uncommon anymore to reach 90 and beyond. There is a lot to consider when planning for a retirement that could last more than two decades, including how much you should be saving now and whether you're on track to reach your retirement goals. At Morgan Stanley, we understand the idea of saving for a life event that may be many years away is challenging. Our financial professionals can help you build a roadmap to a more comfortable future, starting today.

Save Smart for Retirement

Whether you are nearing retirement or just starting your career, it is always the right time to save for the years ahead. Here are some key things to know about saving and planning for retirement.

Why Start Now Benefits of Your 401(k)Retirement Rollovers

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Why Start Now

Time can be one of the most powerful tools in a retirement savings plan, allowing you to build a healthy nest egg even if you are only able to save small amounts. Work to start saving for retirement early in your career, whether through an employer's 401(k) plan or an individual retirement account (IRA).

Save for Retirement

The Internal Revenue Service suggests you'll need up to 80% of your annual income today to help ensure your quality of life continues once you retire.¹ Consider saving at least 10% annually over the course of your career. lf you are not able to save 10% to 15% of your pay, consider gradually increasing your deferral rate over time. As your earnings increase later in your career, you may want to consider maxing out your retirement plan contributions each year.
Over time, compound interest — the "snowball effect" of interest earned on money that previously earned interest — coupled with consistent contributions to a retirement account can help turn even small deposits into a significant balance.

Here's a simple example of how compound interest can grow the value of your money:
- You invest $1,000 into an account that earns a 4% annual rate of return.
- After one year, your balance is $1,040.
- At the end of year two, your account balance grows to $1,082.
Because of compound interest, you earned interest on your $1,040 balance, not just the original $1,000 investment. If you leave the money in the account for 10 years and continue to earn 4% annually, your initial investment of $1,000 will have grown to $1,480. Now consider how much more your savings would grow with compound interest if you contributed $1,000 in each of those 10 years, rather than just the first year.

Putting the power of compounding, consistent contributions and time to work can help you build savings for the retirement you want.

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Benefits of Your 401(k)

One of the simplest and most effective ways to save for retirement is to contribute to your company's 401(k) plan. A 401(k) plan allows you to defer a portion of your paycheck to your retirement account each pay period automatically, while potentially reducing your tax bill this year. But are you getting the most out of your 401(k)? Learn about strategies that may help you optimize your plan.

Invest for the Future

Many employers match employee contributions to their 401(k) in some way. If your employer does, find out how much you need to save to qualify for the match. A common match formula is 50 cents for every dollar saved, up to 6% of your pay. Employees in this type of plan need to contribute at least 6% of their salary to the 401(k) plan to get the maximum possible 401(k) match. (Note that employers choose whether or not to contribute to their employees’ 401(k) accounts; they are not required to do so.)

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Retirement Rollovers

If you opened and saved through a 401(k) plan at a former employer, you should pat yourself on the back for making a smart decision, even if you are no longer at that job or planning to leave soon. When you change jobs, you can choose to keep investing those savings tax—deferred after considering your options and factors. Since your 401(k) may comprise a good portion of your savings, it's important to consider your various options and determine which is the best for you.

Start Planning Now

Typically, as a retirement plan participant changing jobs, you generally have four potential options for your old retirement account: (1) cash out the amount in your former employer's plan and take a lump sum distribution (subject to mandatory 20% federal tax withholding, as well as potential income taxes and a 10% penalty tax); (2) leave the assets in your former employer's plan (if permitted); (3) roll over the retirement assets into your new employer's qualified plan, if one is available and rollovers are permitted; or (4) roll over the retirement assets into an IRA. Each option offers advantages and disadvantages, depending on your particular facts and circumstances, including your financial needs and your particular goals and objectives. Your company's H.R. department, legal and tax advisors, or a financial professional can help you determine which option may work best for you.

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¹ Retirement Topics - Benefits of Saving Now," Internal Revenue Service, last updated June 5, 2023, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-benefits-of-saving-now