How to Calculate Your Retirement Number (The 4% Rule)

The 4% rule, developed by financial planner William Bengen in 1994, states you can safely withdraw 4% of your portfolio each year in retirement without running out of money over a 30-year period — based on historical stock and bond market performance back to 1926.

Flip that: multiply your expected annual retirement expenses by 25 to get your target portfolio.

• $40,000/year in expenses → $1,000,000 needed
• $60,000/year in expenses → $1,500,000 needed
• $80,000/year in expenses → $2,000,000 needed

Many people underestimate because they forget what changes in retirement. Some costs go up:

• Healthcare — typically the biggest wildcard, especially before Medicare at 65
• Travel and leisure in early retirement (the "go-go years")

Some costs go down: no commute, no work clothing, no saving for retirement, and ideally no mortgage if you've timed it right. A rough industry benchmark is 70–80% of pre-retirement income as a target spend. But this varies widely — someone planning extensive travel might spend 100% or more; someone with a paid-off home and modest lifestyle might spend 50%.

Social Security replaces a significant chunk of income for most Americans — typically 40% for average earners, less for high earners. That income reduces how much your portfolio needs to generate.

Example: You need $60,000/year. Social Security pays you $24,000/year ($2,000/month). Your portfolio only needs to cover the remaining $36,000 — a target of $900,000 instead of $1,500,000.

Hitting $1.5M by 65 looks very different depending on when you start, assuming 7% average annual growth:

• Starting at 25, $500/month: ~$1.2M at 65
• Starting at 25, $700/month: ~$1.7M at 65
• Starting at 35, $1,000/month: ~$1.2M at 65
• Starting at 35, $1,500/month: ~$1.8M at 65

To generate the same outcome starting at 35 vs 25, you need to save roughly twice as much per month. That's the pure cost of a 10-year delay — not a penalty, just math.

Fidelity recommends these portfolio milestones as a multiple of your annual salary:

• By age 30: 1× your salary
• By age 40: 3× your salary
• By age 50: 6× your salary
• By age 60: 8× your salary
• By age 67: 10× your salary

These aren't perfect for everyone — they assume a consistent savings rate and average market returns. But they're a useful gut-check. If you're a 45-year-old earning $80,000 with $150,000 saved, you're behind the 5× benchmark at that age. Knowing that, you can act now rather than at 60.