How to Calculate How Much You Need to Retire

The question "how much do I need to retire?" has a surprisingly concrete answer once you know your expected annual spending. The standard framework: multiply your annual spending by 25. If you need $60,000/year from your portfolio, you need $1,500,000. If you need $80,000, you need $2,000,000. This is based on the 4% withdrawal rule, which has survived every 30-year period in US market history since 1926.

Step 1: Estimate Annual Retirement Spending

Start with your current spending, not your income. Many people save 15-20% of income, pay into Social Security, and have work-related expenses that disappear in retirement. A common estimate: 70-80% of pre-retirement income as a starting point. On $100,000 income: $70,000-$80,000 in annual retirement spending.

Better approach: actually calculate your expenses. Track spending for 3 months, then project forward. Remove items that go away (commuting, work clothes, retirement contributions, Social Security tax) and add items that increase (healthcare, travel, hobbies). Most retirees find their actual spending is 75-85% of pre-retirement levels in the early years, dropping to 65-75% in later years.

Step 2: Account for Social Security

Social Security replaces roughly 40% of pre-retirement income for average earners. The average benefit in 2026 is approximately $1,900/month ($22,800/year). The maximum benefit at age 67 is about $3,800/month ($45,600/year). Check your estimated benefit at ssa.gov — it factors in your actual earnings history.

Subtract Social Security from your annual spending need to find what your portfolio must cover. If you need $70,000/year and expect $24,000 from Social Security, your portfolio covers $46,000. At 25x: you need $1,150,000, not $1,750,000. Social Security is effectively a $600,000 asset if it covers $24,000/year at the 4% rule.

Step 3: Apply the 25x Rule

Step 4: Adjust for Inflation

If you are 20 years from retirement, that $75,000 spending need becomes about $135,000 in nominal terms at 3% inflation. But you do not need to save $135,000 × 25 = $3.4 million. Your investments grow with inflation too. The simplest approach: do all calculations in today's dollars using real returns (investment return minus inflation). Then your target number is already in today's purchasing power.

Step 5: Calculate Required Monthly Savings

Once you know your target, work backward to find monthly savings. A 30-year-old with $50,000 saved, targeting $1,250,000 by age 65 at 7% nominal return, needs to save about $650/month. At age 35 with the same target, the number jumps to $1,050/month. At 40: $1,700/month. At 45: $2,900/month. The math is unforgiving about delayed starts.

Don't Forget Healthcare

Healthcare is the wildcard. A 65-year-old couple retiring in 2026 can expect to spend approximately $315,000 on healthcare throughout retirement (Fidelity estimate), not including long-term care. Medicare covers a lot but not everything — premiums, copays, deductibles, dental, vision, and hearing add up. Budget an additional $6,000-$12,000 per person per year for out-of-pocket healthcare costs above Medicare.

If you retire before 65, you need to bridge the gap to Medicare eligibility. COBRA coverage lasts 18 months. ACA marketplace plans vary by income and location but can cost $500-$1,500/month per person. This pre-Medicare healthcare cost is the biggest financial obstacle for early retirees.