How Much Money Do You Need to Retire?

The key to retirement security isn't a “magic number” like $1 million or $2 million—it's figuring out the size investment portfolio you need to support the life you want.

Quick Formula

The Retirement Number Formula:

Target Savings = (Annual Desired Spending - Guaranteed Annual Income) x Multiplier

Use 25x Multiplier for a standard 30-year retirement; 33x Multiplier for early retirement.

Calculating Your Retirement Number

A Three-Step Formula to Determine Your Retirement Number

STEP 1: Define Your Vision (The Spending Target)

Many people believe you will need to spend about 80% of your pre-retirement income in retirement. While that might work for some, there is no one-size-fits-all rule. Your number might be completely different.

Start here: What lifestyle do you want, and what do you truly need to spend to achieve the retirement lifestyle you desire?

• Low-Cost: Simple living, fixed expenses covered, minimal travel, or moving to low cost-of-living states (Mississippi, Oklahoma, Kansas, Missouri, Alabama) or countries (Vietnam, Indonesia, Thailand, Philippines, Malaysia, Ecuador, Mexico, Panama, eastern European countries).

• Comfortable: Steady travel, hobbies, and no budgeting stress.

• Luxury: World travel, maintaining two homes, and aggressive spending goals.

  
  

Your desired annual spending is your starting point.

Recommendation: Create a retirement budget from the bottom up. Use what you currently spend as a starting point. Make adjustments for things like eliminating your mortgage payment, kids leaving home, stopping retirement savings, increased travel, increased spending on hobbies, and rising healthcare expenses.

STEP 2: Calculate The Gap

Next, deduct all the guaranteed income that you will receive automatically, such as Social Security, pensions, and annuities.

👉 Retirement Spending (Step 1) - Guaranteed Income = The Gap

The Gap is the amount your investments must cover every single year.

Example: You plan to spend $90,000 per year. Your guaranteed income is $40,000 per year.

👉 $90,000 - $40,000 = $50,000 Gap

STEP 3: Calculate Your Target Savings Goal

Now, multiply the Gap by a factor based on your risk tolerance and time horizon to calculate your savings goal. This is based on the 4% Rule (where 25 is the inverse of 4%) but adjusted for how long you expect to be retired and how much tolerance you have for risk during retirement.

Example: Your income-spending Gap is $50,000. For a typical 30-year retirement multiply that by 25 and your Target Savings is $1.25 million.

👉 $50,000 X 25 = $1,250,000 Target Savings

Multiplier	Target Savings	Best For ...
25x	$1.25 Million	A typical 30-year retirement (the standard safety baseline)
33x	$1.65 Million	Early retirement (longer time horizon) or a desire for very high safety
20x	$1.0 Million	Later retirement, flexible spending, or a plan to work part-time in retirement. Highest risk unless short retirement timeline or very flexible spending plan.

Note: These multipliers are the inverse of your Safe Withdrawal Rate (SWR). A 4% SWR equals a 25x multiplier; a 3% SWR equals a 33x multiplier; a 5% SWR equals a 20x multiplier.

Critical Bonus Tips (Don't Miss These!)

• INFLATION: You must assume your spending will rise by 3%-4% every year. Your portfolio must generate growth to offset this.

• HEALTHCARE: These costs are often underestimated. Factor in dedicated funds for rising premiums and potential long-term care. If you plan to live in the U.S., healthcare costs are projected to grow about 5-7% per year over the next 10 years.

  
  

THE BOTTOM LINE

Retirement planning isn't about chasing a magic number. It's about designing a resilient plan where your guaranteed income plus portfolio withdrawals keep pace with your desired lifestyle. Minimizing taxes is also important—see my blog post on asset location for helpful tips ("Reduce Taxes Through Proper Asset Location").

Taking Action Towards Your Retirement Goals

Ready to find your retirement number and build a plan to hit it? Would you like help stress-testing your retirement plan? Contact me or visit www.flourishingpathfinancial.com/book-online to book a free Discovery Session and get started!

Author: John Macy, MBA, RICP®

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