To calculate your retirement number, figure out what you’ll spend each year in retirement, subtract any guaranteed income like Social Security or a pension, and multiply the remaining gap by 25. That product is roughly the portfolio size you need on the day you stop working. A $60,000-a-year spender who expects $24,000 from Social Security needs their investments to cover $36,000, which points to a target of about $900,000. The rest of the work is pressure-testing that figure against inflation, taxes, how long you’ll live, and what the market does in the first few years after you retire.
Estimate What You’ll Actually Spend
Your target is only as reliable as your spending estimate, so start with the past twelve months of bank and credit card statements. That gives you a baseline grounded in reality rather than guesswork. Then adjust for what changes when you stop working.
Some costs fall away. Commuting, work clothes, payroll taxes, and retirement contributions all disappear the day you retire. If you’ve paid off your mortgage by then, that one line item can shave hundreds of thousands off your lifetime needs.
Other costs grow, and healthcare leads the list. If you retire before 65, you’ll need to buy private coverage until Medicare eligibility, and marketplace premiums vary widely with age, location, and income. Once Medicare takes over, it still isn’t free. The standard Part B premium for 2026 is $202.90 per month, higher earners pay income-related surcharges, and Part B carries a $283 annual deductible plus 20% coinsurance with no out-of-pocket cap unless you buy supplemental coverage.1Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles2Medicare. What Does Medicare Cost? Medigap or Medicare Advantage plans cap your exposure but add their own premiums.3Medicare. Get Medigap Costs
Long-term care is the expense most calculators ignore. A semi-private nursing home room now runs a median of about $315 per day, roughly $115,000 per year, and women tend to need care longer than men. At minimum, treat this as a contingency line item rather than pretending it won’t happen.
Separate your discretionary spending (travel, dining, hobbies) from the non-negotiables. That split becomes a pressure valve later if markets turn against you in your first years of retirement.
Subtract Your Guaranteed Income
Your portfolio doesn’t have to fund every dollar you spend. It only has to fill the gap between your total spending and whatever shows up as guaranteed monthly income. Pull your personalized benefit estimates by logging into a my Social Security account on the SSA website; the statement shows what you’d receive at 62, at full retirement age, and at 70.4Social Security Administration. Get Your Social Security Statement Those projections assume you keep earning at your current salary until you claim, so treat them as a ceiling if you plan to stop working early.
If you have a pension, request a summary plan description or annual benefit statement from HR. It’ll show the monthly payment you can expect based on service years and salary history.
When you claim Social Security changes the math significantly. Full retirement age for anyone born in 1960 or later is 67. Claim at 62 and your benefit is permanently reduced by 30%.5Social Security Administration. Benefit Reduction for Early Retirement Wait past full retirement age and your benefit grows by 8% for each year you delay, up to age 70.6Social Security Administration. Delayed Retirement Credits For someone whose full retirement benefit at 67 would be $2,500 per month, waiting until 70 pushes it to about $3,100. Over a 20-year retirement that’s more than $144,000 in additional income, and every dollar of it is a dollar your portfolio doesn’t have to produce.
Pick a Time Horizon and Withdrawal Rate
Your time horizon runs from your retirement date to the end of your life. Since the second date is unknowable, most planners build a margin of safety by planning to age 90 or 95. The Social Security Administration’s actuarial life tables show average remaining life expectancy at every age, which gives you a starting point.7Social Security Administration. Actuarial Life Table Half the population outlives those averages, though, and if your family tends toward long lives, plan accordingly.
Retire at 65 and plan to 90, and your horizon is 25 years. Retire at 60 and plan to 95, and it’s 35. That gap changes both how much you need and how aggressively you have to stay invested. Shortening the horizon to make the number look easier is one of the riskiest moves in retirement planning. Running out of money at 88 with no ability to go back to work has no good fix.
The 25x Rule and the 4% Rule
The 25x rule is simple arithmetic: multiply the annual spending your portfolio needs to cover by 25. A $36,000 gap after Social Security points to a $900,000 portfolio. A $60,000 gap points to $1.5 million.
This is the inverse of the 4% rule, which came from research by three Trinity University professors who studied decades of historical market returns and withdrawal rates. Their finding was that a retiree who withdraws 4% of their initial portfolio in year one and then adjusts that dollar amount for inflation each year has a high probability of the money lasting at least 30 years. Dividing annual spending by 0.04 produces the same target as multiplying by 25.
If you plan to retire early and need the money to last 35 or 40 years, drop to a 3% or 3.5% withdrawal rate. At 3%, that same $60,000 budget calls for $2 million instead of $1.5 million. The longer the horizon, the smaller the safe withdrawal.
Adjust for Inflation and Taxes
The number you’ve calculated so far is in today’s dollars. Inflation will erode its purchasing power between now and the day you retire. At a long-run average of about 3% annually, $60,000 of today’s spending needs roughly $108,000 to buy the same things 20 years from now. If retirement is a decade or more away, run your target in future dollars so you aren’t aiming at a figure that looks right on paper but falls short in practice.
Taxes matter just as much, and the type of account your savings sit in decides how much of each withdrawal you actually keep. Distributions from traditional IRAs and 401(k) plans count as ordinary taxable income.8Internal Revenue Service. IRA FAQs – Distributions (Withdrawals) If most of your wealth is pre-tax, you need to gross up your savings target so a 15% to 22% effective tax rate doesn’t leave your net spending short.
Roth IRAs and Roth 401(k)s work in reverse. You already paid tax on the contributions, so qualified withdrawals come out tax-free as long as the account has been open at least five years and you’re at least 59½.8Internal Revenue Service. IRA FAQs – Distributions (Withdrawals) A mix of pre-tax and Roth money gives you flexibility to pull from Roth in years when a traditional withdrawal would push you into a higher bracket.
State income taxes add another layer. About 42 states exempt Social Security benefits from state tax; the rest tax some or all of them depending on your total income. Pension and account withdrawals get varying treatment too. Where you live in retirement can shift your effective rate meaningfully.
Account for Sequence-of-Returns Risk
The 4% rule works well on average, but averages hide a real danger: a sharp market drop right after you retire can permanently shrink your asset base in a way even strong later returns can’t repair. Two retirees with identical average returns over 25 years can end up with wildly different outcomes based solely on the order those returns arrived. The one who hit early losses while withdrawing finished with a fraction of the wealth of the one who got early gains.
A few practical buffers help. Keeping one to two years of living expenses in cash or short-term bonds means you don’t have to sell stocks during a downturn. The discretionary spending line you separated earlier gives you room to temporarily cut withdrawals. And a diversified allocation dampens how deep the early-retirement drawdown goes in the first place.
If the Number Looks Out of Reach
The final decade before retirement is where you have the most leverage, and the IRS raises contribution limits as you age. For 2026, the base 401(k) contribution limit is $24,500. Workers 50 and older can add $8,000 in catch-up contributions, bringing the total to $32,500. SECURE 2.0 created a higher catch-up tier for workers aged 60, 61, 62, and 63: the catch-up limit jumps to $11,250, allowing total contributions of $35,750.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
IRA limits are smaller but still matter. The 2026 base limit is $7,500, with an additional $1,100 catch-up for those 50 and older, for a total of $8,600.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Maxing both accounts through your peak earning years, with employer matching on top, can add hundreds of thousands to the balance over a decade.
Working one or two extra years has a triple effect: another year of contributions, more time for investments to compound, and one fewer year the portfolio has to sustain. Combined with delaying Social Security to boost the guaranteed-income side of the equation, those final working years are the most powerful tool available to anyone who discovers at 58 that they’re behind.