How Much Money Do You Need to Retire?

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.

One retirement, two different spending gaps

Suppose your annual spending, including withdrawal taxes, is $60,000. A pension will provide $12,000 a year after tax, but it will not start until five years after you leave work. Your portfolio initially covers $60,000, then $48,000. Treating the pension as income from day one would hide $60,000 of spending across those first five years, before any investment effects.

At a 4% starting rate, those two annual gaps imply $1.5 million and $1.2 million respectively. They describe different stages, not two competing answers. Our Financial Independence Calculator uses the largest annual spending gap in the period you enter for its portfolio target. It checks accessible bridge savings separately; it does not simulate every future withdrawal or a market crash.

Write down each income start date before choosing a target. A total net-worth figure cannot show whether the right money is available at the right time.