The Retirement Plan Most People Follow

If you ask most people what retirement looks like, you’ll probably get some version of the same answer.

Work for 40 years, save money along the way, and retire sometime around 65. Then spend your retirement years doing whatever makes you happy.

That’s the traditional retirement plan, and there’s absolutely nothing wrong with it. In fact, it’s the path millions of people have successfully followed for generations.

But it’s not the only option.

Retirement accounts

One of the most common tools people use to save for retirement is a retirement account. This is simply a special type of investment account designed to help people save and invest for the future.

These accounts often come with tax advantages that encourage long-term saving. Two of the most common retirement accounts are IRAs and 401(k)s.

What’s an IRA?

An IRA is an “Individual Retirement Account”. Think of an IRA as a retirement account that you open yourself rather than through your employer.

The two most common types are:

Traditional IRA

Traditional IRAs may provide a tax benefit today, but you’ll generally pay taxes when you withdraw the money in retirement. Traditional IRAs are usually for people that think they’ll make less income in their retirement years than how much they’re making now.

Roth IRA

Roth IRAs work the opposite way. You contribute money that’s already been taxed, but withdrawals in retirement are generally tax-free. Roth IRAs are for those that estimate their income will be higher in retirement than what they’re making now.

Traditional = tax break now. Roth = tax break later

What is a 401(k)?

A 401(k) is similar to an IRA, except it’s offered through your employer. Many employers allow you to contribute directly from your paycheck, and some even match a portion of your contributions.

If your employer offers a match, that’s usually worth paying attention to because it’s essentially free money. Like IRAs, many 401(k) plans also offer both Traditional and Roth contribution options.

Why the traditional approach works

The biggest advantage is time. Someone who consistently saves and invests for 30 to 40 years can build a substantial nest egg. They don’t need to hit home runs, they just need to stay consistent.

For many people, boring and consistent works surprisingly well.

Why some people look for alternatives

Life doesn’t always fit neatly into a traditional retirement timeline.

Some people want more flexibility. Others want the option to work less, switch careers, start a business, travel more, or simply have greater control over how they spend their time.

That doesn’t necessarily mean they want to stop working completely. It just means they want more choices.

Another way to think about it

Instead of focusing solely on a retirement date decades in the future, some investors focus on building investments that can support their lifestyle down the road.

The goal isn’t necessarily to stop working. The goal is to create options. Maybe your investments and the income from them eventually help cover:

• A car payment
• Your grocery bill
• Your housing costs
• Or even your entire lifestyle

Everyone’s definition of success is different.

Sometimes a successful path in life isn’t about quitting your job. It’s about having more choices.

So which approach is right?

Both work. Many people use traditional retirement accounts like 401(k)s and IRAs while also building investments outside of those accounts.

It doesn’t have to be one or the other. In fact, it often makes sense to do both.

The important thing is to figure out what you’re trying to accomplish.

If your goal is a traditional retirement at age 65, great. If your goal is creating flexibility earlier in life, that’s fine too.

Why it matters

One of the biggest mistakes people make is blindly following a financial plan that doesn’t match the life they actually want.

The traditional retirement path is a good one. But it’s worth asking yourself an important question: what am I actually saving and investing for?

The answer will help determine the strategy that’s right for you.

At Firreo, we believe investing should help support the life you want to live, not just the life you hope to live decades from now.

The goal isn’t simply to retire someday. The goal is to build a life with more options.