How Much Money Do I Need to Retire? A Simple Formula

The formula for your retirement number is simpler than most financial institutions want you to believe. Take your expected annual spending in retirement, multiply by 25, and that's your target. If you plan to spend $60,000/year, you need $1.5 million. If you plan to spend $80,000/year, you need $2 million. This is the 4% rule: a $1 million portfolio can support $40,000/year in withdrawals almost indefinitely.

The critical variable in this formula isn't your income — it's your spending. A high earner who spends $150,000/year needs $3.75 million to retire. A moderate earner who spends $50,000/year needs only $1.25 million. Reducing your retirement spending has a double benefit: you need less invested, and you're spending less now, which means you're accumulating more. Every dollar of reduced annual spending cuts your FIRE number by $25.

Spending in retirement doesn't have to match your current spending. Many retirees find that expenses actually drop significantly after leaving work — no commuting costs, professional wardrobe expenses, or frequent work lunches. On the other hand, healthcare and travel often increase. The typical guidance is to budget 70-80% of pre-retirement income, but individual variation is high. Use your actual expected expenses, not a generic percentage.

Social Security is a wildcard that most Americans should factor in. The average Social Security benefit in 2025 is approximately $1,800/month ($21,600/year). If you expect to receive Social Security, it directly reduces your portfolio withdrawal requirement. Someone spending $60,000/year in retirement and receiving $20,000 from Social Security only needs to withdraw $40,000 from their portfolio — requiring $1 million rather than $1.5 million (a $500,000 difference in the required balance).

Healthcare is the largest financial unknown for most retirees. Pre-Medicare costs (before age 65) can run $500-1,000/month for a healthy individual on ACA coverage. Post-Medicare costs for premiums, copays, and out-of-pocket expenses typically run $3,000-8,000/year. Planning for $10,000-15,000/year in healthcare costs throughout retirement is conservative but prudent.

Sequence-of-returns risk deserves consideration when sizing your number. A major market decline in the first 5 years of retirement can be devastating to portfolio longevity — you're selling shares at low prices to fund living expenses, permanently reducing the base that would otherwise recover. Building in a 10-15% buffer above your strict 4% rule target provides meaningful protection. Using a 3.5% withdrawal rate (28-29x spending) rather than 4% is an even more conservative approach for early retirees with 40+ year horizons.

The honest answer to "how much do I need to retire?" is: calculate your actual expected expenses, multiply by 25-30 depending on your risk tolerance and retirement length, add a buffer for healthcare and sequence risk, and subtract any expected Social Security or pension income. Most people find the answer is more achievable than they assumed — and the path there clearer once the math is explicit.

Running your own specific numbers — with your actual age, savings, and target spending — is far more useful than relying on generic rules of thumb. The math is straightforward and the results are often surprising.