Everyone seems to have a number in mind for retirement — $1 million, $2 million, "enough to never worry." But where does that number actually come from, and how do you figure out what your number should be?
The answer is more personal and more calculable than most people realize. Your retirement number isn’t determined by a generic rule of thumb or what your neighbor is saving — it’s determined by how you plan to live, when you plan to retire, and what income sources you’ll have available. Here’s how to figure it out.
The Foundation: The 4% Rule and the 25x Formula
The most widely used framework for calculating a retirement number comes from the Trinity Study, landmark 1998 research by three professors at Trinity University. They analyzed historical market returns and withdrawal rates to determine what percentage of a portfolio retirees could safely withdraw each year without running out of money over a 30-year retirement.
Their conclusion: a 4% annual withdrawal rate has historically been sustainable across almost all 30-year periods, even those beginning at market peaks or spanning major crashes.
This creates the simple 25x formula:
Retirement Number = Annual Expenses in Retirement × 25
If you expect to spend $50,000/year in retirement, you need $1,250,000. If you expect to spend $40,000, you need $1,000,000. If you can live comfortably on $35,000, your target is $875,000.
The math: 4% of $1,250,000 = $50,000. Your portfolio generates your living expenses, and — based on historical returns — the remaining portfolio balance continues to grow enough to sustain future withdrawals indefinitely (or for at least 30 years with very high confidence).
How to Estimate Your Annual Retirement Expenses
The most important input in your retirement number calculation is your expected annual spending in retirement. Most financial planners suggest using 70-80% of your pre-retirement income as a starting estimate, but this is a rough approximation. Your actual number depends on your specific plans.
Expenses That Typically Decrease in Retirement
- Commuting and work-related costs: Clothing, transportation, lunches, professional memberships
- Mortgage: If your home is paid off by retirement, this major expense disappears
- Retirement savings contributions: You no longer need to save for retirement once you're there
- Children's expenses: Dependent children are typically grown and financially independent
- Payroll taxes: Social Security and Medicare taxes end when earned income ends
Expenses That Typically Stay the Same or Increase
- Healthcare: The biggest wildcard in retirement budgeting. Medicare starts at 65, but premiums, supplemental insurance, dental, vision, and out-of-pocket costs add up. Fidelity estimates the average couple retiring at 65 today needs approximately $315,000 specifically for healthcare costs over retirement.
- Housing: If you rent or still carry a mortgage, this continues. Maintenance and property taxes continue for homeowners.
- Food and everyday living: These costs remain relatively stable
- Travel and leisure: Many new retirees spend more, not less, in their early "go-go" years when health and energy are good
- Inflation: Everything costs more over time. At 3% annual inflation, prices double every 24 years — your $50,000 budget in 2026 needs to cover what $100,000 buys today by 2050.
Building a Retirement Budget
Rather than applying a percentage, build an actual anticipated budget for your retirement lifestyle. Go through your current expenses and adjust each category:
- Housing (mortgage paid off vs. still paying? downsizing?)
- Food and groceries
- Healthcare (Medicare premiums, supplement, dental, vision, out-of-pocket)
- Transportation (will you have one car? Two? No car?)
- Travel (how often, how extensively?)
- Entertainment and hobbies
- Gifts and charitable giving
- Home maintenance and property taxes
Add up your anticipated annual spending. That's the number you multiply by 25. Being honest and detailed here produces a far more accurate retirement target than any rule of thumb.
The 4% Rule Has Important Limitations
The 4% rule is a useful starting point, but it was designed for 30-year retirements. Several circumstances warrant adjusting it:
Retiring Early
If you retire at 50 instead of 65, you're potentially funding a 40-50 year retirement, not 30. Research using more recent market data and longer time horizons suggests 3-3.5% as a safer withdrawal rate for very long retirements. This means a 28.5-33x multiplier rather than 25x.
A 45-year-old planning to retire on $60,000/year and live to 95 would need: $60,000 × 33 = $1,980,000 — nearly $2 million for a safe 50-year retirement.
Sequence of Returns Risk
The 4% rule assumes average returns. The order of those returns matters enormously — a major market crash in your first few years of retirement is far more damaging than the same crash 15 years in, because early withdrawals lock in losses before recovery. Retiring into a bear market can deplete a portfolio much faster than historical averages suggest.
Strategies to mitigate sequence risk: maintain 1-2 years of expenses in cash or short-term bonds, be willing to temporarily reduce withdrawals during market downturns, and delay major discretionary spending if markets decline significantly in your first retirement years.
Social Security and Other Income
Your retirement number should only account for expenses your portfolio needs to cover. If Social Security will provide $24,000/year and your annual expenses are $60,000, your portfolio only needs to generate $36,000 — requiring $900,000 rather than $1,500,000. Every dollar of guaranteed income (Social Security, pension, annuity) reduces how much your portfolio needs to produce and therefore reduces your required savings target.
This is why delaying Social Security can dramatically reduce your required portfolio size. A monthly benefit of $1,800 vs. $2,500 (by delaying from 62 to 70) means needing $168,000 less in portfolio savings to cover the same annual expenses.
Sample Retirement Number Calculations
To make this concrete, here are three scenarios:
Scenario 1: Standard Retirement at 65, Modest Lifestyle
- Annual expenses: $45,000
- Social Security income: $20,000/year
- Portfolio needs to cover: $25,000/year
- Retirement number: $25,000 × 25 = $625,000
- Timeline: 30 years (to age 95)
Scenario 2: Retirement at 65, Comfortable Lifestyle
- Annual expenses: $80,000
- Social Security income: $30,000/year
- Portfolio needs to cover: $50,000/year
- Retirement number: $50,000 × 25 = $1,250,000
- Timeline: 30 years
Scenario 3: Early Retirement at 50, No Social Security Yet
- Annual expenses: $55,000
- Social Security income: $0 initially (will start at 70)
- Portfolio needs to cover: $55,000/year initially
- Using 3.3% withdrawal rate for 50-year retirement: $55,000 ÷ 0.033 = $1,667,000
- Can reduce once Social Security begins at 70
How to Calculate How Long It Will Take to Reach Your Number
Once you know your target, the question becomes: given your current savings and monthly contributions, when will you get there?
The inputs:
- Current portfolio balance
- Monthly contribution amount
- Expected average annual return (7% real return, net of inflation, is a reasonable conservative estimate for a diversified stock/bond portfolio)
- Target retirement number
Online retirement calculators (at Fidelity, Vanguard, or Bankrate) can model this precisely in minutes. As a rough guide:
- A 35-year-old with $50,000 saved and contributing $1,000/month will reach $1,250,000 in approximately 27 years (age 62) at 7% annual returns
- The same person contributing $1,500/month reaches $1,250,000 in approximately 22 years (age 57)
- Starting 10 years earlier with the same parameters reduces the timeline by far more than 10 years due to compound growth
Common Retirement Calculation Mistakes
Underestimating healthcare costs
Many people budget almost nothing for healthcare in retirement, assuming Medicare covers everything. It doesn't. Medicare premiums, supplemental (Medigap) insurance, dental, vision, hearing, and out-of-pocket costs routinely total $500-1,000+/month for a couple. Build a realistic healthcare line item into your retirement budget.
Ignoring inflation
Your $50,000 retirement budget in today's dollars will require significantly more in actual dollars 20-30 years from now. Build in an annual cost-of-living adjustment to your projections, or use a real (inflation-adjusted) return assumption to account for it automatically.
Forgetting about taxes
Withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income. If your model shows $50,000 in annual withdrawals, your pre-tax withdrawal needs to be higher to net that after taxes. Roth accounts eliminate this issue — another reason to prioritize Roth contributions during accumulation.
Not accounting for Social Security
Many people calculate their retirement number without subtracting the income Social Security will provide. If Social Security will cover $20,000-30,000/year of your expenses, your portfolio target may be hundreds of thousands of dollars lower than you think.
Books That Help You Plan for the Long Term
Understanding your retirement number is step one — building the savings system to get there is step two. Ramit Sethi's I Will Teach You To Be Rich walks you through maximizing 401(k) and IRA contributions, choosing the right investments, and automating a savings system that builds toward your number without requiring constant attention. It's the most practical guide to actually executing the savings strategy behind your retirement goals.
For the philosophical dimension — understanding what enough actually means, and what kind of life you want your retirement savings to support — Vicki Robin's Your Money or Your Life is essential reading. The book's framework for calculating your "crossover point" — where investment income exceeds expenses — is essentially the FIRE movement's foundation, and it gives your retirement number real meaning beyond just a dollar figure.
The Bottom Line
Your retirement number is not a universal figure — it's personal, based on your expected lifestyle, your retirement age, your other income sources, and your risk tolerance. The 25x rule gives you a starting point; the work of building your actual budget and adjusting for your specific circumstances gives you a number you can actually plan toward.
Once you know your number, reverse-engineer the path: how much do you need to save per month, at what return, over how many years, to get there? Use a retirement calculator, run the math, and build a contribution plan around the answer.
Related reading: saving for retirement, financial independence, and Social Security benefits.
The most important thing isn't having a perfect number. It's having any number — a real, calculated target that makes your saving feel purposeful and your progress measurable. Start with the 25x formula applied to your honest estimated retirement expenses, and refine from there.