Retirement
How Much Money Do You Need to Retire?
Turn your expected spending, Social Security and other income into a retirement target you can test.
Start with the spending your portfolio must cover
There is no universal retirement number. Begin with expected annual spending in today's dollars, including housing, health care, insurance, transportation, travel, irregular costs and taxes created by portfolio withdrawals. Then subtract dependable income that does not come from the investment portfolio, such as an estimated Social Security benefit, a pension or net rental income.
The remaining annual gap is the amount your portfolio must support. Dividing that gap by a starting withdrawal rate produces a useful planning target. For example, a $48,000 annual gap implies about $1.2 million at 4% or $1.6 million at 3%. That is a scenario, not a guarantee.
Model retirement in stages
Income and expenses rarely begin on the same date. Someone who leaves work at 55 may have a bridge period before Social Security, Medicare or penalty-free access to some retirement accounts. Marketplace coverage may be one option before Medicare, with eligibility for savings depending on current household and income information. Later, housing costs may fall while medical or support costs rise.
Enter each future income only when it is expected to start. Keep taxable, tax-deferred and tax-free accounts separate when tax treatment or access timing matters. Use net amounts when the calculator does not model a tax rule you can verify.
Stress-test the target
A useful plan should survive more than one return assumption. Compare a base case with lower returns, higher inflation, a longer life and an early market decline. A decline near the start can be especially damaging because withdrawals leave fewer assets to recover, a problem known as sequence-of-returns risk.
A 40- or 50-year retirement should be tested separately from a conventional 30-year illustration. Also test practical adjustments, and review the estimate when spending, benefits, balances or timing changes. Your actual Social Security estimate should come from your personal SSA record.
Bottom line
A useful retirement target starts with the spending your portfolio must cover, when other income begins and which savings you can actually access.
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Sources
- Social Security Administration: Plan for Retirement (opens in a new tab)
- Investor.gov: Introduction to Investing (opens in a new tab)
- HealthCare.gov: Health Coverage for Retirees (opens in a new tab)
This guide is for general education, not personal investment, tax, legal or financial advice. Check current rules and talk with a qualified professional when the decision calls for it.