How Much Money Do You Need to Retire?
The most common answer — "save $1 million" — is both too simple and often wrong. Your retirement number is deeply personal, depending on your lifestyle, location, health, and when you plan to retire. Here's how to calculate yours.
The 4% Rule: Your Starting Point
The most widely cited retirement guideline states that you can withdraw 4% of your portfolio annually with a high probability of not running out of money over a 30-year retirement.
Your retirement number = Annual expenses × 25
Examples:
- $40,000/year expenses → $1,000,000 needed
- $60,000/year expenses → $1,500,000 needed
- $80,000/year expenses → $2,000,000 needed
Adjusting for Your Reality
The 4% rule is a starting point, not gospel. Adjust based on:
Retire early (before 60): Use 3–3.5% withdrawal rate (portfolio needs to last 40+ years) Retire at 65+: 4–5% may be sustainable with Social Security supplementing High healthcare costs: Add $250,000–$350,000 for healthcare if retiring before Medicare eligibility Pension or Social Security: Subtract the annual benefit from your expense need before calculating
What Will You Actually Spend?
Most retirees spend 70–80% of their pre-retirement income in early retirement, declining to 50–60% in later years. Key expense categories to model:
- Housing (often the largest — consider downsizing)
- Healthcare (often increases significantly)
- Travel and leisure (often highest in early retirement)
- Food and transportation
- Taxes (yes, retirement income is often taxable)
The Social Security Factor
The average Social Security benefit in 2024 is approximately $1,907/month ($22,884/year). For a couple, this could be $3,000–$5,000/month combined — significantly reducing the portfolio needed.
Adjusted retirement number example:
- Annual expenses: $60,000
- Social Security income: $24,000/year
- Remaining portfolio-funded need: $36,000/year
- Portfolio needed at 4%: $900,000 (vs. $1,500,000 without SS)
Building Toward Your Number
Use our Passive Income Goal Calculator [blocked] to model how long it takes to reach your retirement number at different savings rates and return assumptions.
Key milestones on the path to retirement:
- Emergency fund: 3–6 months expenses
- Employer match: Always contribute enough to capture full 401(k) match
- High-interest debt: Eliminate before aggressive retirement saving
- Max tax-advantaged accounts: 401(k) ($23,000/year), IRA ($7,000/year)
- Taxable brokerage: After maxing tax-advantaged accounts
Frequently Asked Questions
Q: Can I retire on $500,000? A: At 4%, $500,000 generates $20,000/year. Combined with Social Security, this may be sufficient for a modest lifestyle in a low cost-of-living area.
Q: What if I retire and run out of money? A: This is called "sequence of returns risk." Mitigate it by maintaining a 1–2 year cash buffer, being flexible with withdrawals, and considering part-time work in early retirement.
Q: Should I pay off my mortgage before retiring? A: Generally yes — eliminating your largest fixed expense significantly reduces the portfolio size needed and provides peace of mind.
Q: How does inflation affect my retirement number? A: Inflation erodes purchasing power over time. A 3% inflation rate means $60,000 today will require $108,000 in 20 years to maintain the same lifestyle. Factor this into your planning.