How Much Do I Need to Retire? The 25x Rule Explained

The short answer

Roughly 25 times your annual spending. If you expect to spend $70,000 a year in retirement, that implies $1.75 million.

Two adjustments matter: subtract what Social Security will cover, and use a lower multiple if you're retiring early.

Where 25× comes from

The multiple is the inverse of the 4% withdrawal rate. Withdraw 4% of your initial portfolio in year one, adjust that dollar amount for inflation each year after, and historically the money lasted a 30-year retirement in nearly every period tested.

25 × spending = the portfolio where 4% covers your costs. That's the whole derivation.

Start with spending, not income

The common shorthand of "70–80% of pre-retirement income" is a starting point, not an answer. It assumes several costs disappear: retirement contributions, payroll tax, commuting, and often a mortgage.

It's wrong in both directions for specific situations:

• Retiring before 65 means individual-market health insurance, frequently $800–$1,800 a month for a couple. Early years can exceed 100% of pre-retirement spending.
• Planning significant travel in the first active decade means spending more, not less.
• Paying off the mortgage the year before retiring can drop the requirement closer to 55%.

Build the number from projected expenses wherever you can. And track actual spending for three months first — most people underestimate by 15 to 25%.

Subtracting Social Security

Social Security replaces roughly 40% of pre-retirement income for a median earner, and proportionally less for higher earners because of the benefit formula's bend points.

If you spend $70,000 a year and expect $26,000 from Social Security, your portfolio only needs to cover the $44,000 shortfall — which at 4% is $1.1 million, not $1.75 million.

But timing matters. Social Security doesn't start until your full retirement age, typically 67. Retire at 60 and your portfolio covers the full $70,000 for seven years before the shortfall math applies. This is why retiring at 66 can be dramatically harder than retiring at 68.

When 4% stops applying

The rule came from testing 30-year retirement periods. Two things limit it for early retirement.

Duration. A 40-year retirement has meaningfully lower historical success rates at 4%. Many long-horizon planners use 3.25% to 3.5%, which raises the multiple to 29–31×.

Sequence of returns. A severe downturn in the first few years does far more damage than the same downturn later, because you're selling depressed assets to fund spending. Common responses: hold one to three years of spending in cash to avoid forced selling, and stay willing to reduce spending in bad years — which materially improves the odds.

A worked example

Spending $62,000 a year, retiring at 62, expecting $24,000 of Social Security from 67:

• Years 62–67: portfolio covers all $62,000. At a 3.5% rate that alone implies $1.77M
• From 67: portfolio covers $38,000. At 3.5% that's $1.09M

The bridge period sets the requirement. Plan for it explicitly rather than averaging the two.

Three levers when the number looks impossible

1. Reduce target spending. The most powerful, because it works on both sides — every dollar cut lowers the target by 25 and frees a dollar to save.
2. Work two or three more years. Adds contributions and growth while removing withdrawal years from the other end.
3. Increase contributions. Real but linear, where the other two compound.

Chasing a higher investment return is a distant fourth and carries risk the others don't.

Don't count home equity

It can't fund withdrawals without selling or borrowing. Owning your home outright does reduce the spending your portfolio must support — count it that way, as a lower target, rather than as an asset.