Most Americans are guessing when it comes to how much they need to retire. A 2024 survey by Northwestern Mutual found the average "magic number" people cited was $1.46 million — but the median retirement savings of those near retirement was under $100,000. The gap is not just about saving enough. It starts with not knowing what enough actually means. Here is how to calculate your real retirement number.
Your Retirement Number: The Simple Formula
The most widely used approach is the 25x rule: take your expected annual spending in retirement and multiply by 25. That is your target portfolio size.
| Annual Retirement Spending | Target Portfolio (25x) |
|---|---|
| $40,000/year | $1,000,000 |
| $50,000/year | $1,250,000 |
| $60,000/year | $1,500,000 |
| $75,000/year | $1,875,000 |
| $100,000/year | $2,500,000 |
The key input is your spending, not your income. If you retire and spend $60,000 per year, you need $1.5 million — regardless of whether you used to earn $80,000 or $200,000. This is liberating: you control your number by controlling your lifestyle.
The 4% Rule Explained
The 4% rule originated with financial planner William Bengen in 1994 and was expanded in the "Trinity Study" (Cooley, Hubbard, Walz, 1994). Researchers tested withdrawal strategies against historical market data going back to 1926. Their finding: a retiree who withdraws 4% of their initial portfolio in year one — then adjusts each year for inflation — has a roughly 95% chance of not running out of money over a 30-year retirement with a 50–75% stock allocation.
The rule has limitations. It was built on US market data. It assumes a 30-year retirement (retiring around 65). And it does not account for unusually poor sequence of returns in early retirement years. For a 40-year retirement, some researchers suggest 3.3–3.5% as a safer rate.
The inverse: the 25x rule
If you can withdraw 4% per year, your portfolio only needs to be 25x your annual spending (because 1 ÷ 0.04 = 25). This is the origin of the 25x rule. Simple, and surprisingly robust as a first estimate.
Savings Benchmarks by Age
Fidelity Investments publishes widely cited benchmarks that assume retiring at 67 and replacing about 45% of pre-retirement income from savings (with Social Security and other sources covering the rest).
| Age | Fidelity Benchmark | Example (at $70K salary) |
|---|---|---|
| 30 | 1× salary | $70,000 |
| 35 | 2× salary | $140,000 |
| 40 | 3× salary | $210,000 |
| 45 | 4× salary | $280,000 |
| 50 | 6× salary | $420,000 |
| 55 | 7× salary | $490,000 |
| 60 | 8× salary | $560,000 |
| 67 | 10× salary | $700,000 |
These benchmarks assume you have been saving consistently. If you started late, you will need to save a higher percentage of income each year to catch up. A 45-year-old with only 1× salary saved needs to dramatically increase contributions — but it is still achievable.
Other Income Sources That Change the Number
The 25x rule calculates what your portfolio needs to cover. But most retirees have other income sources that reduce how much the portfolio must provide:
| Income Source | Effect on Retirement Number |
|---|---|
| Social Security | Average benefit ~$1,800/month ($21,600/year) — subtract this from spending before multiplying by 25 |
| Pension | Same as Social Security — reduce your annual spending gap |
| Part-time work | Even $1,000/month = $12,000/year = reduces portfolio need by $300,000 |
| Rental income | Directly reduces spending gap, same math applies |
Example: Social Security adjusts the target
Say you plan to spend $60,000/year. You will receive $20,000/year in Social Security. Your portfolio only needs to cover $40,000/year. Your retirement number drops from $1,500,000 to $1,000,000 — a $500,000 difference. Do not forget to include expected Social Security before calculating your target.
What If You Want to Retire Early?
The 4% rule was designed for a 30-year retirement (roughly ages 65–95). If you plan to retire at 50, you could have a 45-year retirement. The longer your retirement, the less you can safely withdraw each year.
| Retirement Age | Expected Retirement Length | Safe Withdrawal Rate | Multiplier |
|---|---|---|---|
| 65 | ~30 years | 4.0% | 25× |
| 60 | ~35 years | 3.7% | 27× |
| 55 | ~40 years | 3.5% | 29× |
| 50 | ~45 years | 3.3% | 30× |
| 45 | ~50 years | 3.0% | 33× |
Retiring at 50 with $60,000/year in spending needs? You likely need closer to $1.8 million (30× expenses) rather than $1.5 million (25×). Early retirement is achievable but requires more savings and usually more flexibility with spending during market downturns.
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Common Mistakes That Underestimate the Number
1. Using current spending, not retirement spending
Many people assume they will spend less in retirement. Sometimes true — no commuting costs, no work wardrobe. But healthcare costs typically rise sharply. The average retired couple spends around $315,000 on healthcare costs in retirement (Fidelity 2024 estimate). Budget conservatively.
2. Forgetting inflation
The 4% rule already adjusts withdrawals for inflation. But if you use the nominal return on your portfolio without accounting for inflation, you will think your money goes further than it does. Plan in real (inflation-adjusted) dollars.
3. Underestimating longevity
The average 65-year-old American lives to 84 (men) or 87 (women). Plan to age 90 or 95. Running out of money at 88 is a worse outcome than dying with money left over.
Key Takeaways
- Your retirement number = annual expenses × 25 (based on the 4% safe withdrawal rule).
- Social Security and pensions reduce the portfolio you need — always subtract guaranteed income from spending before multiplying.
- Fidelity's benchmarks: 1× salary at 30, 3× at 40, 6× at 50, 10× at 67.
- Early retirees need a higher multiple (30–33×) due to a longer retirement horizon.
- Healthcare, inflation, and longevity are the three most commonly underestimated factors.
For a complete overview of how compound interest, retirement planning, inflation, savings, and FIRE all connect, see our Investing Basics guide.