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How much do I need to retire? The 25× rule with a real example
The 25x rule turns a lifestyle into a savings target in one step. Here's how to use it — and where it breaks down.
Your retirement number is 25 times what you spend in a year.Spend $60,000/year? You need roughly $1.5 million invested. That's the 25x rule, and it's the fastest way to convert a lifestyle into a savings target.
The 25x rule is a baseline, not a guarantee. Below we walk through where it comes from (the 4% rule), how to refine it for your situation (Social Security, healthcare, retirement age), and how to back into a monthly savings rate that gets you there from where you are now.
The 4% rule and 25x rule are the same thing
The 4% rule says you can withdraw 4% of your portfolio in your first year of retirement, adjust the dollar amount for inflation each year after, and have high confidence of not running out of money over a 30-year retirement.
The 25x rule is the inverse: if 4% of your portfolio covers a year of spending, then your portfolio is 25 times your annual spending (100 ÷ 4 = 25).
Both come from the Trinity Study (1998, updated multiple times), which tested historical US stock/bond portfolios across all 30-year periods since 1926. A 50/50 or 60/40 stock/bond portfolio survived 95%+ of historical 30-year windows at 4% withdrawals.
The quick calculation
Step 1: figure out your annual spending in retirement. Start with your current annual spending. Adjust:
- Subtract mortgage payments if you'll have paid it off by retirement
- Subtract retirement contributions (you stop making them)
- Subtract payroll taxes (FICA — 7.65% of wages — disappears in retirement)
- Add expected increases in healthcare spending (especially pre-Medicare)
- Add inflation in current dollars (or work in today's dollars and assume real returns)
Step 2: multiply by 25.That's your portfolio target in today's dollars.
| Annual spending | 25x portfolio target | After Social Security ($25K) |
|---|---|---|
| $40,000 | $1,000,000 | $375,000 |
| $60,000 | $1,500,000 | $875,000 |
| $80,000 | $2,000,000 | $1,375,000 |
| $120,000 | $3,000,000 | $2,375,000 |
The Social Security adjustment is huge.A $25K/year Social Security check is worth $625,000 of portfolio in the 25x math. Most US workers will get one; don't ignore it when setting the target.
Where the 4% rule breaks down
- Early retirement (35+ year horizons). The 30-year Trinity test gets less reliable past 30 years. A 3.5% withdrawal rate (28.6x) or 3.25% rate (~31x) is safer for 35–40+ year retirements.
- High current valuations. Starting retirement after a long bull market reduces forward returns. Some researchers recommend a 3.5% starting rate when CAPE ratios are elevated.
- Sequence-of-returns risk. A bad early-retirement market can sink the portfolio even if average returns are fine. Holding 2–3 years of spending in cash/bonds at retirement onset reduces this risk.
- Inflation shocks. The 4% rule adjusts for inflation but assumes typical inflation. A sustained 5%+ environment is harder on portfolios.
- Variable spending. If you can flex spending down in bad years (skip a vacation, drive the car another two years), your safe rate is higher than 4%. Rigid budgets need lower rates.
How much to save monthly to hit the number
The amount you need to save depends on three things: your starting age, your target retirement age, and your assumed real return (after inflation). Most planning assumes 5–7% real returns for a stock-heavy portfolio.
Rule of thumb: save 15% of gross income from age 25 (including any 401(k) employer match) for a target of replacing ~80% of pre-retirement income at 65. Starting later requires more:
| Starting age | Years to retirement (65) | Approx. savings rate needed |
|---|---|---|
| 25 | 40 years | 15% of gross |
| 35 | 30 years | 20% |
| 45 | 20 years | 30%+ |
| 55 | 10 years | 50%+ (or working longer) |
The 2026 contribution limits that fund the plan
Per IRS news release IR-2025-111, the 2026 retirement contribution limits are:
- 401(k) elective deferral: $24,500 (up from $23,500); $32,500 with the age-50+ catch-up of $8,000; $35,750 with the SECURE 2.0 super catch-up for ages 60–63 ($11,250)
- IRA contribution: $7,500 ($8,600 with the 50+ catch-up of $1,100)
- HSA: $4,400 self-only / $8,750 family ($1,000 catch-up at 55+), per Rev. Proc. 2025-19
Max all three ($24,500 + $7,500 + $8,750 family HSA = $40,750/year) and most households earning $100K–$150K are well above the savings rate they need. See how much to contribute to your 401(k)and the funding order.
The order to fund retirement accounts
- 401(k) up to the match — free money, never skip
- HSA if you have an HDHP — triple tax advantage; see HSA as a stealth retirement account
- Max the IRA ($7,500 in 2026). Roth if you're in a low bracket today, Traditional if high.
- Back to the 401(k) — fill it up to the $24,500 limit
- Taxable brokerage for anything beyond the tax-advantaged limits, especially if you're targeting early retirement
Where to hold retirement savings
The brokerage matters less than starting, but for IRAs and taxable brokerage accounts, pick one with strong fund selection, automatic rebalancing options, and clean cost-basis reporting for the eventual withdrawal phase.
Equally good for retirement accounts:
Healthcare is the wild card
Pre-Medicare retirees (under 65) face the biggest single budget item:healthcare. ACA marketplace plans for a 60-year-old can run $1,500–$2,500/month before subsidies. Subsidies phase out at higher income, so early retirees managing income to qualify for subsidies is a real strategy.
After 65, Medicare Part B premiums are means-tested through IRMAA (Income-Related Monthly Adjustment Amount). High-income retirees pay 2–4x the standard Part B premium. This is why people manage Roth vs. Traditional balance in advance — to keep Medicare income in lower IRMAA brackets.
The bottom line
Take your current annual spending, subtract what Social Security will cover, multiply the rest by 25.That's a perfectly reasonable starting target. Refine with the early-retirement adjustment if you'll retire before 60, the healthcare bridge if you'll retire before 65, and a more conservative 3.5% withdrawal rate if you want extra safety.
Then back into the monthly savings rate that gets you there from your current age. If it's realistic, save it. If it's not, work longer, spend less, or accept a smaller number. The math is unforgiving but transparent.
Related reading
Frequently asked questions
- What is the 4% rule for retirement?
- The 4% rule says you can withdraw 4% of your portfolio in your first year of retirement and adjust the dollar amount for inflation each year after, with high confidence (95%+) of not running out of money over a 30-year retirement. It comes from the 1998 Trinity Study using historical US stock/bond returns. It's a planning baseline, not a guarantee — high market valuations or longer retirements can lower the safe rate to 3.0%–3.5%.
- What is the 25x rule?
- The 25x rule is the inverse of the 4% rule: your retirement number is 25 times your annual spending. If you spend $60,000/year and want it to keep coming, you need roughly $1.5 million invested. It's the simplest way to convert a lifestyle into a savings target.
- Does the 4% rule include Social Security?
- No — the 4% rule covers withdrawals from your portfolio only. Social Security, pension income, rental income, or part-time work all reduce the portfolio number you need. If you need $60,000/year and Social Security covers $25,000, your portfolio only needs to fund $35,000/year → $35,000 × 25 = ~$875,000.
- How much should I save each month to retire?
- It depends on your age, target retirement age, and current savings. As a rough rule, saving 15% of gross income from age 25 puts most people on track to replace 80% of pre-retirement income at age 65, assuming a 401(k) match and a 7% real return. Starting later requires a higher rate: 20% at age 35, 30%+ at age 45 for the same outcome.
- How does retirement age change the number?
- Significantly. Retiring at 55 instead of 65 typically means 10 more years of withdrawals AND 10 fewer years of contributions and compounding — often a 40–50% larger portfolio requirement. Early retirement also means a lower safe withdrawal rate (3.5% or lower) because the portfolio has to last 35–40+ years instead of 30.
- What if I want to retire early (FIRE)?
- The FIRE community usually targets 25x–33x annual expenses (a 3% to 4% withdrawal rate) for retirements longer than 30 years. The math gets harder because you bridge to Social Security and Medicare with portfolio-only spending. Strategies: build a large taxable brokerage account for ages 50–59½, use Roth conversion ladders to access IRA funds early, and budget separately for pre-Medicare healthcare costs.