How Much You Need to Retire — The Retirement Number Explained
What is a retirement number?
The total invested portfolio you need so that withdrawals can fund your lifestyle without running out. It depends on three inputs: annual expenses, expected returns after inflation, and how long the money must last.
The 25x rule
Example: $40,000 yearly spending → 40,000 × 25 = $1,000,000. The logic: withdrawing 4% of the portfolio in year one (1 ÷ 25 = 4%), then adjusting withdrawals for inflation, historically sustained 30-year retirements.
Step-by-step: your own number
- Estimate annual expenses in today's money — use actual spending, not income. Exclude mortgage-if-paid and commuting costs; add healthcare.
- Adjust for inflation to your retirement year: expenses × (1 + rate)^years (see the inflation guide).
- Apply the multiplier — 25x for ~30-year horizons; 30–33x (3–3.3% withdrawal) for 40+ years.
- Subtract guaranteed income — pensions or rental income covering part of expenses reduce the required portfolio proportionally.
- Check savings trajectory — run the number through the Retirement Calculator with your monthly contributions.
Worked example
Today's expenses $36,000 · retiring in 20 years · inflation 3%
Future annual expenses = 36,000 × 1.03²⁰ ≈ $65,000
Target at 25x = $1.63M · at 30x (longer horizon) = $1.95M
A $500/month SIP at 8% for 20 years builds ≈ $295k — showing why earlier, larger contributions matter.
Where the rule breaks down
- Sequence risk: a crash right after retirement damages the portfolio far more than the same crash earlier.
- Very long horizons: 45-year retirements need lower withdrawal rates.
- Healthcare shocks: late-life medical costs are the most common budget break.
- Country risk: historical US returns don't automatically transfer to other markets.
Levers that move the number most
| Lever | Effect |
|---|---|
| Cut expenses by $5,000/yr | Target drops by ~$125,000 (25x) |
| Retire 5 years later | Higher savings + fewer withdrawal years compound strongly |
| Pay off home before retiring | Removes the biggest single expense line |
Why the 4% is a starting rate, not a flat amount
The guideline comes from historical simulations of balanced portfolios surviving 30-year retirements — it is evidence-based but not a guarantee. What it actually specifies is the first-year withdrawal; after that you raise the dollar amount with inflation. On a $1,000,000 portfolio with 3% inflation, the withdrawal path looks like: Year 1 $40,000 → Year 2 $41,200 → Year 3 $42,436 → Year 4 $43,709 → Year 5 $45,020. Same 4% start, growing dollars — which is why a portfolio that only yields 4% nominal cannot sustain it, and why real (after-inflation) returns are the number that matters. The Retirement Calculator models this trajectory for your own numbers.
FAQ
Should I include my home in the number?
Generally no — you live in it. A paid-off home indirectly helps by lowering the expenses the portfolio must fund.
What return should I assume after retiring?
Planners commonly use 4–6% nominal on a balanced portfolio, or roughly 2–3% real after inflation. Conservative assumptions build in a safety margin.
How do taxes change the math?
Withdrawals from pre-tax accounts are taxable income. Model expenses after tax, or gross them up — the calculator's assumptions page explains which basis it uses.