Retirement Planning

The most common shorthand is 25 times your annual spending, which corresponds to a 4% withdrawal rate. If you spend $80,000 a year, that implies $2 million. Adjust down if you'll have meaningful Social Security or a pension, and adjust up if you plan to retire before 60, since the money must last longer and Medicare is not yet available.

The 4% rule came from historical US data over 30-year retirements, and it held in nearly every historical period. It is less reliable for retirements longer than 30 years, which is exactly the early-retirement case. Many planners now use 3.25–3.5% for a 40+ year horizon. The rule also assumes you mechanically ignore market conditions, whereas real retirees adjust spending in bad years — which materially improves the odds.

Capture the full employer 401(k) match first, always — it is an immediate guaranteed return no investment can match. After that, an IRA often makes sense next because you control the investment menu and the fees. Once the IRA is maxed, return to the 401(k) for the remaining tax-advantaged room.

It raises the target substantially over long horizons. At 3% inflation, costs roughly double every 24 years, so $80,000 of spending becomes about $145,000 in 20 years. Any retirement projection that reports a future balance without stating whether it is inflation-adjusted is close to meaningless.