How much do I need to retire? A field guide to the actual number.

Ask the internet how much you need to retire and the answer arrives like a ransom note: one million dollars, or one and a half, pick your nightmare. The figure is meant to concentrate the mind. Mostly it just convinces people the whole enterprise is hopeless and best not thought about until later — and later, compounding being what it is, is the most expensive time to start.

So here is a more useful number to begin with: $400,000. That is, roughly, what one of the three households in this article needs in order to retire — and that household brings in about $65,000 a year. The distance between the scary number and that one is the whole subject of this piece. It is not a trick. It is arithmetic, and once you have watched it done you can do it for yourself.

A warning before we start. The arithmetic produces a target, and the target is genuinely useful. But it rests on a tidy set of assumptions, and retirement is not tidy. We will do the clean math first, because you need it — and then we will be honest about the five places the clean math bends.

Start with spending, not income

The first mistake nearly everyone makes is to anchor on income. I earn ninety thousand, so I need to replace ninety thousand. It feels right, and it is wrong — because you do not spend your income. You spend what is left of it after the parts that quietly disappear in retirement.

Consider what stops. The mortgage, for many people, is paid off or nearly so. The 10% or 15% of your pay that was being diverted into retirement accounts — you are no longer setting it aside, because you have arrived. The payroll taxes that fund Social Security stop coming out of your check. The costs of working itself — the commute, the lunches bought in a hurry, the wardrobe, the second car — shrink or vanish. The children, with luck and a following wind, are supporting themselves.

This is why the standard guidance says you will need somewhere between 70% and 80% of your pre-retirement income. But that range is a shortcut, and you can do better than a shortcut. The honest version: sit down and estimate what you will actually spend in a year as a retired person. Housing, food, insurance, travel, the hobbies you will finally have time for, a replacement car every decade. That annual figure — your retirement spending, not your old salary — is the foundation everything else is built on.

The rule: multiply by twenty-five

Here is the rule, and it really is this simple. Take the amount you expect to spend in a year. Subtract the income that will arrive regardless of what your savings do — Social Security, plus a pension if you are one of the shrinking number of people who still has one. Whatever is left is the gap your portfolio has to cover. Multiply that gap by 25. That is your number.

Twenty-five. Where does it come from? It is the flip side of something called the 4% rule, and the two are the same idea seen from opposite ends. In 1994 a financial adviser named William Bengen ran the historical numbers and asked a precise question: if a retiree withdrew some percentage of their savings in the first year, then adjusted that dollar amount for inflation every year after, what is the largest starting percentage that would have survived a 30-year retirement — including for the unlucky retiree who stopped working just before the worst markets in modern American history? His answer was about 4%.

Withdraw 4% in year one and, on the historical evidence, the money lasted. And 4% is simply one twenty-fifth. If your portfolio needs to produce $40,000 a year, and $40,000 is 4% of the whole, then the whole is $40,000 × 25, or $1,000,000. That is the entire derivation. Multiply your annual gap by 25 and you have a portfolio target that, judged against history, you could draw on for three decades without running it dry.

Notice what the subtraction does. You are not multiplying your spending by 25. You are multiplying the gap — what remains after Social Security. And Social Security does a great deal of the lifting, which is precisely why the three households below land where they do.

Three households, three numbers

Here is the rule applied to three real-shaped lives. Watch the gap, not the spending — that is where the story is.

Four hundred thousand dollars. Not nothing — but not the million-and-a-half the internet promised would be the price of admission. For this household, Social Security covers two-thirds of the bill, because the benefit formula is progressive: it is built to replace a larger share of a smaller income.

The three targets — $400,000, $800,000, $1.85 million — are not merely different sizes. They reveal the pattern. The more you intend to spend, the more of the burden shifts off Social Security and onto your own savings, because Social Security is capped and replaces a steadily smaller share of income as income climbs. The scary headline figure was never wrong, exactly. It was the answer to a high earner's question, quoted to everyone.

Five things the number quietly leaves out

Now the honest part. The 25× target is a real and useful number — treat it as your first target and you will not be embarrassed by it. But it is a sketch, and here is where the sketch parts company with the territory.

1. A traditional 401(k) is not all yours. Money in a traditional 401(k) or IRA has never been taxed. When you withdraw it in retirement, it is taxed as ordinary income. So a $1,000,000 traditional balance is not $1,000,000 of spending — it might be $830,000 after tax, depending on your bracket. A Roth account, already taxed, is different: a dollar in a Roth is a dollar. The 25× rule applied to a pre-tax balance quietly overstates what you can actually spend. Build the target a little higher, hold some Roth, or both.
2. The order of the bad years matters more than the fact of them. The 4% rule already accounts for bad markets — Bengen built it on history's worst sequences. But it is worth understanding why the rule is cautious. A crash in your first two retired years is far more dangerous than the identical crash in year twenty, because you are selling investments to live on while they are down, and those shares never get the chance to recover. This is sequence-of-returns risk. It is why you do not retire holding 100% stocks, and why a willingness to spend a little less in a bad year is worth more than any spreadsheet.
3. Health care is a separate, large bill. Fidelity's most recent annual estimate puts lifetime health-care costs for a 65-year-old retiring today at around $172,500 — roughly $345,000 for a couple — and that is with Medicare, covering premiums, deductibles, and the gaps Medicare simply leaves. Health-care costs also climb faster than ordinary inflation, in the range of 5–6% a year. The 25× rule assumes smooth, inflation-adjusted spending. Health care has not read the rule.
4. Long-term care is the hole in the floor. This is the big one, and the one people most want to look away from. Medicare does not pay for long-term custodial care — the nursing home, the memory unit, the aide who comes each day. Roughly 70% of people who reach 65 will need some form of it, and the median nursing-home room now runs well over $100,000 a year. A multi-year stay can drain a portfolio built carefully across decades. The 25× number does not include this. Decide deliberately how you will face it — insurance, earmarked savings, home equity, a clear family conversation — because deciding nothing is also a decision.
5. Real retirement spending is not a flat line. The rule assumes you spend the same inflation-adjusted amount every year for thirty years. Real retirees do not. Spending tends to run highest early — the "go-go" years of travel and projects — then drift down through the quieter years, then sometimes rise again at the end as health care takes over. The researcher David Blanchett named the shape the "retirement spending smile." It means the flat line is wrong in both directions, and that a rigid 4% withdrawal is a starting discipline, not a vow.

What to do with all this

So: is the 25× rule worth using? Yes — genuinely. It converts a vague dread into a concrete target, and a concrete target is the thing you can actually save toward. Estimate your retirement spending, subtract what Social Security will reliably send, multiply the gap by 25, and you have a number that is far better than no number — and, for most households, a good deal smaller than the one that has been frightening them.

But hold it loosely. It is the opening figure in a long planning conversation, not the final word. The five caveats above are not reasons to abandon the number; they are the reasons to revisit it every few years and to build in a margin rather than aiming at the bare minimum.

And notice the one variable the rule hides completely: time. The rule tells you the size of the mountain. It says nothing about whether you will climb it — and that is decided almost entirely by how early and how consistently you save, because of the compounding we are slightly obsessed with around here. A modest sum invested in your thirties does work that a large sum in your fifties cannot match.

Which is the right place to stop reading and start calculating.

iGrow Wealth publishes educational content about personal finance. This article is not personalized investment, tax, or legal advice, and the figures in it are illustrative. For guidance specific to your situation, consider speaking with a qualified professional.