How Much Do I Need to Retire?

The short answer

Your retirement number isn't one fixed dollar amount. It's the piece your savings has to cover after your pension, Social Security, and any other steady income do their part.

The smaller that gap, the smaller the number.

The formula

What you spend each year − the income you can count on = the gap your savings has to cover
Your savings target ≈ 25 × that gap — not 25 × your total spending.

A public-sector pension example

Say a household plans on this in retirement:

• Spending: $96,000 a year
• Pension: $48,000 a year
• Social Security: $24,000 a year
• What's left for savings to cover: $24,000 a year

The simple rule (25 times total spending) says you need $2.4 million. The smarter rule (25 times the gap) says you need $600,000.

That doesn't mean $600,000 is automatically enough. It ignores taxes, what happens if the market drops right when you retire, and what happens to your spouse if you die first. But it makes the real point: a pension changes what your savings has to do. A household with $48,000 a year coming in from a pension isn't in the same boat as a household without one.

Two things public-sector workers should watch:

• The survivor option. The $48,000 pension above is probably the "single-life" version — it stops when you die. To keep it paying your spouse, you usually take a smaller check (5–15% less). Use the smaller "joint-and-survivor" amount in the gap math.
• COLA (Cost-of-Living Adjustment) is the yearly raise on the pension to keep up with inflation. Most public pensions have one, but the cap is usually 2–3%. If inflation runs hotter, the pension slowly loses buying power. Plan a small extra cushion.

Where the 25× number comes from

A financial planner named William Bengen tested every 30-year retirement window in U.S. stock-market history (Journal of Financial Planning, October 1994). He found that if you pulled out 4% in year 1 and bumped that dollar amount up each year for inflation, your money lasted at least 30 years in every test. The 1998 Trinity Study (Cooley, Hubbard & Walz, AAII Journal, February 1998) confirmed it.

That's the 4% rule. The 25× rule is just the flip side: if you can pull 4% a year, your starting balance needs to be 25 times your yearly withdrawal.

Where it helps: as a starting target for the gap your savings has to cover. It's also a sanity check — if a calculator says you need a wildly different number, that's a flag to look at the assumptions.

Where it falls short:

• It assumes savings is your only income source. Pensions and Social Security change the math.
• It was built for a 30-year retirement, not 40 or 50.
• It ignores tax drag — the bite taxes take out of what you actually get to spend. A 4% withdrawal from a pre-tax 401(k) is more like 3.1% after a 22% tax bite. A Roth account stays at 4% because withdrawals from Roth aren't taxed.
• It doesn't catch sequence-of-returns risk — the risk that bad market years come at the worst possible time. We'll come back to that below.

Why 4% is only a starting point

4% is a guideline, not a promise. Newer research shows it's a bit cautious in some cases and a bit risky in others.

A "dynamic withdrawal" rule means adjusting how much you take out based on the market. Take less in bad years, normal in good years. That kind of rule tends to do better than the rigid 4%.

For longer retirements (40+ years), bond-heavy portfolios, or plans without a pension to lean on, start closer to 3.5%. For households where a pension and Social Security cover most expenses, the withdrawal rate matters less — the savings is doing a smaller job.

A simple version: take 4% in year 1. Each year after, if the portfolio is down from last year, skip the inflation raise on your withdrawal (or cut it by 5–10%). If it's up, take the inflation raise normally. That one adjustment handles most of the downside the rigid 4% rule struggles with, without making you save against scenarios that almost never happen.

What changes the number in practice

A few real-world things move the gap. Each is worth a minute of thought before you run a calculator.

• Inflation. Stuff gets more expensive every year. At 3% inflation — close to the long-run U.S. average — what costs $60,000 today costs about $108,000 in 20 years (illustrative math, not a forecast). The BLS keeps a free inflation calculator at data.bls.gov/cgi-bin/cpicalc.pl. The 4% rule already adjusts your withdrawal for inflation.
• Taxes. A pre-tax 401(k) balance isn't really "your money" — part of it belongs to the IRS. A $1 million pre-tax 401(k) at a 22% tax rate is closer to $780,000 to spend. At age 73, the IRS forces you to pull money out of pre-tax accounts whether you need it or not. That's an RMD — Required Minimum Distribution — taxed as ordinary income. (Source: IRS Publication 590-B.) Social Security has its own tax rules; see the Social Security claiming article.
• Healthcare. Medicare starts at 65, but it isn't free (medicare.gov). Plan for Part B and Part D premiums, plus extra premiums called IRMAA — Income-Related Monthly Adjustment Amount — if your income is high. Medicare doesn't cover dental, vision, hearing aids, or long-term care.
  
  Fidelity's 2025 Retiree Health Care Cost Estimate is about $172,500 for a single 65-year-old retiring in 2025 — in after-tax dollars and excluding long-term care. Fidelity publishes that as a per-person figure, so a rough couple estimate is about double, near $345,000, though your actual cost depends heavily on health, location, and how long you live. Treat it as a planning benchmark, not a bill. If you retire before 65, ACA marketplace premiums for a 60-something couple can run $1,500–$2,500+ a month.
• Mortgage and debt. A mortgage that pays off mid-retirement makes spending lumpy — plan for both phases. And don't take high-interest credit card debt into retirement. A card at 22% costs more than any reasonable investment can earn.
• Lifestyle (the "go-go years"). Most retirees spend more in the first 10 years (travel, hobbies, bucket-list trips) than in the next 20. Build that early spike in, or treat it as something you can cut if the market is rough.
• Safety margin. Keep 6–12 months of expenses in cash, separate from your investments, so you don't have to sell stocks at the bottom to pay bills. A separate healthcare reserve covers one-time surprises (a Medicare- supplement gap, a long-term-care decision) that can be a $50,000–$200,000 hit.

Why Monte Carlo helps

Here's the thing about "average return": it can be the same number in two retirements that end very differently. What matters is the order of returns — when the bad years hit.

Picture two retirees who both start with $1 million, plan to pull out $40,000 a year, and earn 7% per year on average over 30 years:

• Retiree A has bad market years 1, 2, and 3. Spending money while losing money drops the balance fast. Even when the market recovers later, the lower base means they can run out years before they planned.
• Retiree B has the same returns in reverse: good years first, bad years later. The balance grows early, so by the time the bad years hit they have a bigger cushion. They finish with money to spare.

Same average return. Same withdrawal. Very different outcomes. This is sequence-of-returns risk — the risk that bad market years come at the worst possible time. It's why the 4% rule is a probability, not a guarantee.

This is where Monte Carlo helps.

Monte Carlo is a computer test that runs thousands of pretend retirements with random market patterns. It reports a success rate — like "83% of scenarios ended with money left over." Most planners aim for 85–95% success, not 100%. Aiming for 100% means saving so much you'd basically work forever. Use 25 times the gap as your starting target, then use Monte Carlo to see if it holds up against the bad sequences too.

How to use this with the tools

Two tools work together:

• The Retirement Readiness tool combines your pension, Social Security, and savings withdrawals into a single monthly check. It handles the timing — when each income stream starts — and the after-tax math.
• The Monte Carlo simulator then stress-tests that plan against thousands of market histories. Start with cautious assumptions and see if your plan still works in the bad scenarios.

Neither tool gives you "the answer" by itself. Together they show whether your plan works for your situation — and what changes (saving more, working longer, claiming Social Security later, spending less) would move the needle. Start by doing the gap math yourself with the formula near the top of this article; then use the tools to stress-test it.