How Much Do You Need to Retire?
The 4% rule, the 25x shortcut, and the assumptions behind them, with a worked example.
- By
- Lynktor Editorial Team
- Reviewed by
- Lynktor Research Desk
- Updated
Start with spending, not savings
Your retirement number depends on what you will spend each year, minus income you will receive anyway, such as Social Security or a pension. That gap is what your savings must cover.
The 25x shortcut
A popular rule of thumb is to save 25 times the annual gap. It comes from the 4% rule: research on historical U.S. returns found that withdrawing 4% of a balanced portfolio in the first year, then adjusting for inflation, lasted at least 30 years in most past periods.
A worked example
You expect to spend $60,000 a year and receive $24,000 from Social Security. The gap is $36,000. At 25x, the target is $900,000.
A rule of thumb is a starting point, not a promise.
Assumptions to question
- Retirement length: retiring early means more years to fund; a lower withdrawal rate may be safer.
- Returns: future markets may be weaker than the past.
- Flexibility: cutting spending in bad years makes a plan much more resilient.
- Health care and taxes: both can be larger than expected.
Use our retirement calculator to test your own numbers, and revisit them every year or two.