The 25x rule, in one paragraph
The most-cited formula in retirement planning is 25x annual spending, derived from the 4% safe-withdrawal rule (Bengen 1994; Trinity Study 1998). Start with your projected annual retirement spending, not your current income, and multiply by 25. That's the portfolio size that should sustain inflation-adjusted withdrawals for 30+ years with 95%+ historical success.
For a household spending $40,000/year: $1.0M target. $60,000/year: $1.5M. $80,000/year: $2.0M. $100,000/year: $2.5M. These numbers are pre-Social Security, most households can subtract a meaningful chunk once SSA benefits are included.
Estimating retirement spending
The honest answer is that most pre-retirees overestimate their retirement spending by about 20%. Employee Benefit Research Institute data shows median retirement spending drops roughly 20% from peak working-year spending, driven by paid-off mortgages, no commute, kids launched, and reduced 'work tax' on lifestyle (lunches, clothes, networking).
Build a real number, not a rule-of-thumb. Take your current monthly spending. Subtract: mortgage if it'll be paid off, commuting, work clothes, lunches, payroll-tax savings, kid expenses if they'll be launched. Add: healthcare (Medicare premiums + supplements + dental run ~$8,000/year per person), more travel or hobbies, any planned aging-in-place renovations. The honest number is usually 70–85% of current spending.
Doing the math, end to end
- Start with current annual spending: $90,000.
- Adjust for retirement: -20% (paid-off mortgage, no commute, kids launched) = $72,000.
- Add healthcare and travel adjustments: +$5,000 = $77,000 in projected retirement spending.
- Expected Social Security for a dual-earner couple at 67: ~$42,000/year.
- Income gap = $77,000 - $42,000 = $35,000/year that must come from the portfolio.
- Target portfolio at 25x the gap: $35,000 × 25 = $875,000.
Lifestyle bands you might recognise
- Lean retiree (rural, paid-off home, $35,000 spend): ~$300,000 portfolio gap after SSA, Lean FIRE territory.
- Average American household ($60,000 spend): ~$500,000–$750,000 portfolio gap after SSA.
- Comfortable middle class ($90,000 spend, light travel): ~$900,000–$1.3M portfolio gap.
- High-spending HCOL retiree ($150,000+ spend, multiple homes): $2.5M+ portfolio.
- Early retirement (FIRE) before 60: skip Social Security adjustment; full 25x of spending plus bridge to age 65 for Medicare.
Things that bend the number
Retire before age 65? You need to bridge to Medicare, ACA marketplace insurance is the standard path and roughly $700–$1,200/month per person depending on subsidy eligibility. This raises early-retirement spending materially.
Have a pension? Subtract its inflation-adjusted annual value from required portfolio withdrawals before applying 25x. A $30,000/year pension is functionally equivalent to a $750,000 portfolio.
Plan to leave money to heirs? The 4% rule typically ends with portfolio mostly intact, but if leaving a specific bequest is a goal, raise the multiplier to 30x. Conversely, comfortable spending down to zero allows 20x.
The 25x rule and where it comes from
Multiply annual spending by 25, not income, to get your retirement number. The multiplier comes from the 4% Safe Withdrawal Rate (1/0.04 = 25): a portfolio that supports a 4% inflation-adjusted withdrawal rate has historically lasted 30+ years across every backtested rolling period in U.S. market history (Trinity Study, 1998).
If you spend $60,000 a year, the math says $1.5 million. But subtract Social Security and pensions before applying the multiplier. A 67-year-old couple with combined Social Security of $42,000/year only needs portfolio income of $18,000/year, 25 × $18,000 = $450,000. The portfolio target shrinks dramatically once you factor in non-portfolio income.
Adjusting for healthcare, taxes and lifestyle creep
Healthcare is the line that breaks most retirement plans. Fidelity's 2024 estimate puts a 65-year-old couple's lifetime out-of-pocket medical spend at $172,500, and that's on top of Medicare premiums. If you retire before 65, ACA premiums for two adults can run $1,200–$2,200/month depending on income and state. Build a separate healthcare bucket for the gap years.
Taxes are the second under-modeled cost. Traditional 401(k)/IRA withdrawals are ordinary income; Roth withdrawals are tax-free; Social Security is taxed at 50–85% rates above modest income thresholds. A retiree pulling $80,000/year from a Traditional IRA pays roughly $7,000 in federal tax, gross your withdrawal targets up by 10–15% to net the spending you actually plan.
Lifestyle creep often hides in the first decade of retirement (the 'go-go years'). Travel, hobbies and grandchildren can push spending 15–25% above pre-retirement levels. Plan for a U-shaped spending curve: high in your 60s, lower in your 70s, rising again in your 80s for healthcare.
Three retirement numbers, by household profile
- Lean retirement (single, $35k/yr spend, $25k SS): portfolio target ~$250,000.
- Median retirement (couple, $65k/yr spend, $40k SS): portfolio target ~$625,000.
- Comfortable retirement (couple, $90k/yr spend, $50k SS): portfolio target ~$1,000,000.
- Affluent retirement (couple, $140k/yr spend, $60k SS): portfolio target ~$2,000,000.
- FIRE retirement (couple, $80k/yr spend, retire at 50, no SS for 15 years): target $2,000,000+.
Action steps to get your number this month
- Track current monthly spending for 60 days, most people are within 10% of their actual number; very few have it right without tracking.
- Multiply by 12, subtract projected Social Security (ssa.gov/myaccount has your number), then multiply by 25 for the 4% target.
- Add a healthcare buffer: $172,500 lifetime per person if retiring at 65; $30,000–$60,000 per pre-65 retirement year for ACA premiums and out-of-pocket.
- Subtract any expected pensions or annuity income, also multiplied by their years of remaining life.
- Run the result through a Monte Carlo retirement calculator (FICalc.app, Engaging Data, ProjectionLab) to see your portfolio's success probability under historical sequences.
