How Much Is Enough?
A retirement target starts with your expected spending, not a magic number. Here is how to estimate what you will need, using the 25-times rule of thumb and what other income will cover.
Start with spending
The most useful retirement number is how much you expect to spend each year. Many planners start with 70% to 80% of your pre-retirement income, since some costs, like commuting and retirement saving itself, go away. Others build a budget line by line. Either way, include health care, which often rises in retirement, and taxes.
Subtract guaranteed income
Next, subtract income you expect from Social Security, pensions or annuities. What remains is the gap your savings must fill. If you expect to spend $60,000 a year and Social Security will cover $24,000, your portfolio needs to supply about $36,000 a year.
The 25-times rule
A common rule of thumb says you need about 25 times the yearly amount your portfolio must supply. It comes from research on a 4% first-year withdrawal rate (1 ÷ 0.04 = 25). In the example above, $36,000 × 25 = $900,000.
| Yearly gap to fill from savings | Target at 25× (about 4% withdrawal) | Target at 30× (about 3.3%, more cautious) |
|---|---|---|
| $20,000 | $500,000 | $600,000 |
| $36,000 | $900,000 | $1,080,000 |
| $50,000 | $1,250,000 | $1,500,000 |
Rules of thumb for planning, not guarantees. Retiring early or wanting more certainty argues for a bigger multiple.
Things that change the number
- Retiring earlier means more years to fund and usually a larger target.
- Inflation raises future costs; plan in today’s dollars and adjust over time.
- Paying off a mortgage before retiring can cut the yearly spending you need.
- Health, family longevity and whether you work part-time all matter.
Milestones along the way
Some planners use rough milestones, such as having about one year of salary saved by 30, three times by 40 and six times by 50. Treat them as a gut check, not a grade. What matters most is saving steadily and adjusting as your picture gets clearer.
Early savings have the longest time to compound.
Key takeaways
- Start with expected yearly spending in retirement.
- Subtract Social Security and pensions to find the gap.
- Rule of thumb: savings target ≈ 25 × the yearly gap.
- Retiring early or wanting more safety means a bigger multiple.
- Use milestones as a gut check, not a grade.