The Simple Answer (And Why It's Wrong)
The most common advice you'll hear: multiply your annual expenses by 25. Spend $40,000 per year? You need $1 million. Spend $60,000? You need $1.5 million. This is based on the 4% rule — the idea that you can withdraw 4% of your portfolio annually without running out of money over a 30-year retirement.
This rule works for many people. It's simple, conservative, and historically backed. But it also makes assumptions that may not fit your life: that you spend the same amount every year, that you have a 30-year retirement timeline, that you're comfortable with a 90% success rate, and that you don't have pension income, Social Security, or other revenue sources.
The reality is more nuanced. Your retirement number depends on what you actually plan to spend, when you plan to start spending it, where that money comes from, and what risk level you're comfortable with.
The Variables That Actually Matter
First: your annual expenses in retirement. This is not your current spending — it's what you expect to spend after you stop working. Many people spend less in retirement (no commute, no work clothes, kids are grown). Others spend more (travel, healthcare, hobbies they couldn't afford to pursue before). Be honest about this number.
Second: your retirement start date. Retiring at 55 is fundamentally different from retiring at 67. A 55-year-old needs their portfolio to last 35+ years. A 67-year-old might only need it to last 25 years. Your age affects both how long you need to sustain yourself and how much you can tap Social Security.
Third: guaranteed income sources. If you have a pension, Social Security, rental income, or other stable revenue that covers your expenses, you don't need as much in your portfolio. A person with $40,000/year Social Security and a small pension might only need $200,000 in savings if their total income exceeds their spending.
Fourth: market volatility tolerance. Some people want a 95% success rate (very conservative). Others accept 85% (more aggressive). A 5% difference in success rate can shift your retirement number by $100,000+.
Your Personalized Retirement Number
Start with annual expenses. Write down what you actually plan to spend per year. Include housing, food, healthcare, travel, hobbies — everything. If you're unsure, calculate your current spending and adjust downward for work expenses, upward for travel or hobbies you've deferred.
Next, calculate your guaranteed income. Add up Social Security (estimate at Full Retirement Age or your claimed age), any pensions, rental income, or other stable sources. Most people underestimate Social Security — a high earner claiming at 67 gets roughly $35,000-40,000 per year in today's dollars.
Subtract guaranteed income from annual expenses. This is the shortfall your portfolio needs to cover. If your expenses are $60,000 and Social Security is $30,000, you need your portfolio to produce $30,000 per year.
Finally, apply the 4% rule in reverse. Divide your annual shortfall by 0.04. If you need $30,000 per year from your portfolio, you need $750,000 in savings. Adjust for your age and risk tolerance if needed.
When The Math Gets More Complex
Healthcare is the wildcard. Medicare starts at 65 and covers most medical costs, but not all. If you retire before 65, you're buying your own insurance — that's expensive. Add $200-500/month to your expenses for pre-Medicare years, or more if you have health conditions.
Taxes matter more than most people realize. A $1 million portfolio generating $40,000/year in dividends and distributions is NOT the same as $40,000 in tax-free income. Depending on your tax bracket, you might need 10-20% more to account for taxes.
Long-term care is the biggest fear for people retiring at 70+. If you want to leave money to heirs, you'll need more than just "enough to live." If you're comfortable spending down everything, you can be more aggressive.
Inflation can vary by person. If you plan to retire somewhere with lower costs (small town, another country), don't assume national inflation rates. If you plan expensive activities (frequent travel), budget for higher inflation.
The Real Way to Know
The honest answer: run your numbers through a Monte Carlo simulation with YOUR specific assumptions. This isn't guesswork — it's running 1,000+ market scenarios and seeing what percentage result in your money lasting.
Use Sagery's retirement calculator to input your specific numbers: current age, retirement age, current savings, monthly savings, annual expenses, Social Security estimates, and time horizon. The calculator will show you not just your retirement number, but what happens if markets go up, down, or sideways.
Most importantly, revisit your number annually. Your retirement age might change. Your expected expenses might shift. Your Social Security estimate might be updated. Your portfolio might grow faster than expected. Your retirement number isn't set in stone — it's a living plan that evolves.
📌 Key Takeaways
- 1Your retirement number = (annual expenses - guaranteed income) ÷ 0.04
- 2Guaranteed income sources (Social Security, pensions) reduce the amount you need to save
- 3Don't underestimate Social Security — it's typically $2,000-3,500+ monthly for average earners
- 4Account for healthcare costs before age 65 and potential long-term care
- 5Use a Monte Carlo calculator to stress-test your number across market scenarios
- 6Revisit your retirement number annually as your situation and goals evolve
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