How Much Do You Need to Retire?
Your retirement number comes from your spending, not your salary. Here is the step-by-step method planners use, with worked examples.
Start with annual retirement spending, subtract Social Security and pensions, and multiply the gap by 25 (the 4% rule). A household spending $70,000 with $30,000 of Social Security needs about $1,000,000. Adjust for retirement age, health costs, and inflation.
Start with spending, not salary
Rules based on salary, like 10x your income, are shortcuts that misfire for savers and spenders alike. What matters is the gap between your retirement spending and your guaranteed income. Two people earning $120,000 can need wildly different nest eggs if one spends $50,000 and the other spends $100,000.
Build the spending side from your actual budget. Most households spend 70 to 80 percent of pre-retirement income, but that average hides everything: a paid-off house cuts spending dramatically, while travel plans raise it.
The 25x shortcut
Multiply your annual spending gap by 25. This is the 4 percent rule inverted: a portfolio that covers 25 years of withdrawals at 4 percent has historically lasted 30-year retirements in most market scenarios.
Example: you will spend $70,000 a year and Social Security will pay $30,000. The gap is $40,000. Times 25 is $1,000,000. That is your first-pass number, before adjustments.
Adjust for retirement age
Retiring at 55 instead of 65 adds a decade of withdrawals and a decade without contributions, and it delays Social Security. Early retirees often target 30x spending or more, and they need a bridge plan for health insurance before Medicare at 65.
Retiring at 70 flips the math favorably: fewer retirement years to fund, delayed Social Security credits worth 8 percent a year past full retirement age, and more compounding. Every year you delay can cut the required nest egg by 5 to 10 percent.
Do not forget health care
Health care is the budget line most pre-retirees underestimate. A 65-year-old couple today can expect several hundred thousand dollars in lifetime out-of-pocket medical costs, and long-term care can dwarf that. Medicare covers a lot, but not everything.
Price an HSA while you are working if you have a high-deductible plan: it is triple tax-advantaged and purpose-built for this exact expense. And get long-term care insurance quotes in your 50s, when they are still affordable.
Turn the number into a plan
Take your target, subtract current savings grown to retirement age, and solve for the monthly contribution that closes the gap. That is exactly what the retirement calculator above does: it shows whether your current pace reaches your number.
If the gap is large, you have three levers: save more, earn more return (with more risk), or retire later. Most people underestimate the third lever. Working two extra years is often easier than doubling contributions for a decade.
Skip the arithmetic
Test whether your savings pace reaches your number with the free retirement calculator.
Finding your number
What is the 4% rule?
The 4 percent rule says you can withdraw 4 percent of your portfolio in the first year of retirement and then adjust that dollar amount for inflation each year, with good odds the money lasts 30 years. It comes from historical market simulations; invert it to get the 25x savings target.
Does Social Security count toward my retirement number?
Absolutely. Your portfolio only needs to cover spending that Social Security, pensions, and other guaranteed income do not. Estimate benefits at ssa.gov, subtract from annual spending, and multiply the remainder by 25.
How does inflation change my retirement number?
Inflation compounds against you the whole way. At 3 percent over 25 years, prices roughly double, so a $1 million lifestyle today costs about $2.1 million in future dollars. Always translate targets into today's dollars before judging whether you are on track.