How Much Money Do I Need to Retire?

The 25 Times Rule

Take the annual amount you expect to spend in retirement and multiply it by 25. If you plan to spend $60,000 a year, you need about $1,500,000. The logic is simple: at a 4% withdrawal rate, a portfolio of 25 times your spending produces exactly your spending each year. Spend $40,000 and you need $1,000,000. Spend $80,000 and you need $2,000,000. The number scales with your lifestyle, not with your income.

The Income Replacement Rule

Many planners say you need enough retirement income to replace 70% to 80% of your preretirement income, because you no longer save for retirement or pay certain work related costs. Someone earning $100,000 would target $70,000 to $80,000 a year from savings, Social Security, and pensions combined. Subtract your expected Social Security from that target, and the remainder is what your own nest egg must produce.

How Social Security Shrinks the Number

Your nest egg does not have to cover everything if you will collect Social Security. The average retired worker benefit is around $1,900 per month, or about $22,800 a year. Under the 70% replacement rule, a $100,000 earner targeting $75,000 needs about $52,200 from savings after Social Security. At a 4% withdrawal rate, that means a nest egg near $1,305,000, which is far less than $1,875,000 would be without Social Security.

Turing Your Target Into a Monthly Plan

Once you know the target, use the retirement calculator to see if your current savings and monthly contribution reach it by your retirement age. The calculator compounds your starting balance and contributions at your expected return, applies inflation so the target stays in today's dollars, and adds any employer match. If the projected total falls short of your target, raise your monthly contribution and rerun it.

Adjusting for Your Own Situation

The rules of thumb assume a typical retirement with modest spending and no large surprises. If you plan to travel heavily, expect big healthcare costs, or want to leave an inheritance, build in extra margin by targeting 30 times spending instead of 25. If your mortgage will be paid off and your costs are low, you may need less. The spending field in the calculator is the place to model your real number.