How Much Do I Need to Retire? A Realistic Framework

Why the famous rules mislead

The 4% rule comes from financial planner William Bengen's 1994 research. He tested withdrawal rates against historical market data and found that withdrawing 4% of the portfolio in year one, then adjusting that dollar amount for inflation each year, survived every 30-year period for a 50% stock, 50% bond portfolio. The 25x rule is the same math inverted: 1 divided by 0.04 is 25, so "save 25 times your annual spending."

These rules earned their fame, but they smuggle in big assumptions:

• Rigid withdrawals. Nobody actually raises spending with inflation in a year their portfolio fell 30%. Real retirees flex, which stretches money further than the rule assumes.
• A 30-year horizon. Retire at 55 and you need 40 years. Retire at 70 with health issues and 30 may be pessimistic. The rule does not know your age.
• No taxes, no fees. Bengen's portfolios were pre-tax and costless. Your 4% has to survive your actual tax bill first.
• US historical returns. The worst sequences in the dataset define the rule. Future returns may be kinder or crueler; the rule cannot tell you which.

So $1 million at 4% is $40,000 a year before taxes. If you spend $80,000 a year, the rule says you need $2 million. That is a fine cocktail-napkin estimate. It is not a retirement plan.

Start with spending, not savings

The only number that matters at first is what you will actually spend. Track a full year of real spending, then adjust for retirement:

• Spending that usually falls: commuting, work clothes, payroll taxes, retirement saving itself (you stop saving once retired).
• Spending that usually rises: travel and hobbies early on, and healthcare, relentlessly, for decades.
• The mortgage question: a paid-off house can cut required spending by $20,000+ a year. A house with 20 years left on the mortgage is a spending line item, not an asset, for planning purposes.

Be honest here. Most people underestimate by 15 to 20% because they budget the life they think they will live instead of the life they actually live. Use bank and credit card statements, not memory.

Subtract what is already guaranteed

Your portfolio does not have to cover all of your spending. It has to cover the gap between spending and guaranteed income:

Guaranteed income sources to count: Social Security (use your ssa.gov estimate, discounted a bit if you will have zero-earning years), pensions, rental income, annuities. Do not count investment returns as guaranteed income; that is what the portfolio is for. Note the timing too: if Social Security starts at 70 but you retire at 60, the portfolio must cover the entire spending load for ten years first, which is much harder than covering a steady gap.

Healthcare is the wild card

Healthcare breaks more retirement budgets than market crashes do, because it is large, growing faster than inflation, and easy to underestimate.

Before Medicare at 65

An unsubsidized ACA Silver plan for a 60-year-old can run $800 to $1,200+ a month per person depending on the state, before out-of-pocket costs. Subsidies help if your income qualifies, but since 2026 the hard 400% federal poverty level cliff is back: one dollar over the limit and the entire subsidy disappears. Managing your MAGI in these years is a five-figure decision, which is why withdrawal sequencing matters as much as withdrawal amounts.

After 65

Medicare is cheaper but not free: Part B premiums ($202.90/month standard in 2026), Part D, Medigap or Medicare Advantage, dental and vision. And IRMAA surcharges add hundreds per month per person once MAGI crosses $109,000 single or $218,000 joint (2026 thresholds, based on income from two years prior). Roth conversions done in your 60s are partly about keeping lifetime MAGI under these lines.

Taxes and inflation raise the number quietly

Two forces erode every static estimate:

• Taxes. Every dollar from a traditional IRA or 401(k) is taxed as ordinary income, and up to 85% of Social Security becomes taxable once provisional income crosses thresholds that have never been indexed for inflation ($25,000 single, $32,000 joint for the first tier). A $60,000 withdrawal is not $60,000 of spending.
• Inflation. At 2.3% a year, prices double roughly every 31 years (divide 72 by the rate). A $60,000 lifestyle today costs about $120,000 in nominal dollars by your mid-80s. Your plan has to grow withdrawals over time, which means the portfolio must earn more than inflation plus your withdrawal rate just to stand still.

Trade a single number for a success rate

Here is the uncomfortable truth: there is no knowable "number." Markets are random, longevity is uncertain, and Congress changes the rules. Anyone selling you a precise figure is selling false confidence.

The honest replacement is a success rate: run your specific plan, with your spending, your accounts, your taxes, and your Social Security timing, through 1,000 randomized market scenarios, and count what fraction still have money at the end. Above 85% is strong. Below 70% means something has to give: spend less, save more, work longer, or convert smarter. That percentage is more useful than any single dollar figure, because it already includes the uncertainty the magic numbers pretend away.

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