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How Much Do I Need to Retire? A Plain-English Guide
The honest answer is: it depends on how much you plan to spend, how long you will live, and how much guaranteed income you will have. The good news is that you can get a useful estimate with four simple steps and a calculator.
Step 1: Estimate your yearly spending in retirement
Many planners say retirees often spend about 70% to 80% of their pre-retirement income, but that is only a rough guide. Some people spend less because they stop saving and commuting. Others spend more on travel and hobbies in the first years. A better method is to look at what you spend today and adjust it:
- Costs that usually go down: retirement savings contributions, payroll taxes, work clothes and commuting, and sometimes a paid-off mortgage.
- Costs that can go up: healthcare, travel, hobbies, home repairs, and help around the house later in life.
Write down a monthly number in today's dollars. For example, $5,000 a month is $60,000 a year.
Step 2: Subtract guaranteed income
Guaranteed income includes Social Security, a pension, or an annuity. If you expect $2,000 a month from Social Security, your savings only need to cover the remaining $3,000 a month, or $36,000 a year. You can check your Social Security estimate by creating a free account at ssa.gov.
Step 3: Multiply the gap by 25
A common rule of thumb is to save about 25 times the amount you need to withdraw each year. That comes from the 4% rule (1 divided by 0.04 is 25). In our example, $36,000 a year times 25 equals $900,000. Read more about the 4% rule and its limits.
Step 4: Add a safety margin for the extras
A simple multiplication ignores several real-world costs:
- Healthcare. Medicare usually starts at 65, but premiums, deductibles and services it does not cover can still be large. If you retire before 65, you need a plan for coverage until then.
- Taxes. Withdrawals from traditional 401(k) and IRA accounts are generally taxed as income, so you may need to withdraw more than your spending goal.
- Long life. Many people plan to age 90 or 95. Running out at 85 is a much bigger risk than having money left over.
- Inflation. Prices rise every year, so a fixed monthly amount buys less over time. Our calculator shows every result in today's dollars to keep this simple.
How the calculator on this site helps
The rule of 25 gives you a quick target. Our retirement calculator goes a step further: it grows your current savings and monthly contributions, adjusts for inflation, and shows whether you are on track, what happens if returns are lower or higher, and how your result changes if you retire earlier or later.
Use the free calculator to see whether you are on track.Open the retirement calculator
This article is for general educational purposes and is not financial, tax or legal advice. Rules and limits change; confirm details with official sources or a qualified professional. See our Disclaimer.