How Much Money Do I Need to Retire?
When it comes to funding retirement, how much money you will need is literally the million-dollar question. I will be transparent, this article is not going to give you a solid answer. After all, I am just a retiree hopeful and an "all things retirement preparedness" enthusiast. I am not a financial professional of any type, but I too want to know the answer. To get a real answer, the best strategy is to meet with a financial planner, but let's have a little fun and just look at the general "rules of thumb" that you will find when researching the topic. They do come from financial experts after all but may or may not be applicable to you.
Warren Buffett is one of the most successful investors in history. He believes in a long-term perspective and avoids speculating on short term market movements. The famous quote attributed to him "it is better to be approximately right than to be precisely wrong," speaks to that philosophy. This could not be truer than with the first retirement "rule" called the 15% rule. This is the savings rate that most financial professionals tell future retirees to start saving for retirement as early as possible, ideally when you start working in your 20's. Saving 15% of your annual income into tax advantaged accounts like an Individual Retirement Account (IRA), 401k, 457, TSP, or similar account depending on what your employer offers, or if you are self-employed. There are both traditional and Roth options in most cases, but we will not discuss the different tax advantages of those two options today. The most important thing is to get into the market early and to stay consistent over time for maximum retirement savings.
Most financial experts include any employer match in the 15% total, the exception is Dave Ramsey, who says that the employer match is gravy and that personally saving 15% of your own household income is the goal. This is where the "approximately right" of Warren Buffett's quote comes into play. You could take to Reddit and find multiple subreddits dedicated to this topic and spend all day trying to find the "precise" answer. It is less important that the total from all sources is 15%, or that it is 15% plus the match, or that you are simply starting with a smaller amount and working towards increasing it over time. The goal should be to start and keep investing. According to AARP, 1 in 5 Americans aged 50 and older have zero retirement savings. By this statistic alone, you can see it is more important to start saving something than waiting for the right answer and the perfect time. That brings us to the next "rule."
In 1994, William Bengen, a financial planner, authored a paper called "Determining Withdrawal Rates Using Historical Data," which was published in The Journal of Financial Planning. This was the first study that attempted to determine what was a safe withdrawal rate in different market conditions during retirement. After it was published, the 4% rule was born. Any type of Google search about how much you will need for retirement will mention this rule. The funny thing is, William Bengen doesn't think it is a rule at all, but the safe withdrawal rate for the "worst case scenario" in the study of 349 hypothetical retirees. As with all studies, specific criteria were determined and used for all subjects. All retirees started with a portfolio of $100,000, with 60% invested in US large company stocks, and 40% in bonds, and the goal was to reach a zero balance at 30 years. Each "retiree" started on a different month and year to start the 30-year retirement horizon, starting in 1926. The unlucky retiree that started retirement in October of 1968 faced the worst sequence of returns and crippling inflation early in their retirement. Bengen found that in this specific scenario, a withdrawal rate in the first year of retirement of 4.1% and then adjusted for inflation each year by applying a Cost-of-Living Adjustment (COLA) each subsequent year, resulted in zero dollars at the end of the 30 years. Most retiree scenarios had a safe withdrawal rate that was much higher, even some double of the worst-case scenario. The 4.1% was then rounded down to 4% and toted by the media as "the rule," even though it was only necessary if you retired at the absolute worst time.
The updated 4.7% rule was released in Bengen's 2025 book titled "A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More." In the book he addresses the biggest criticism of the 4% rule, that it makes most retirees afraid to spend their money in retirement, causing them to be left with money at death they could have spent during their lifetime. When Bengen re-evaluated his data and added in a more diversified asset allocation to the retirees portfolios of 5% cash, 35% bonds, 60% stocks including US large companies, US mid-cap stocks, US small-cap stocks, US micro-cap stocks, and international stocks, he found that the October 1968 retiree could actually withdraw 4.7% instead of 4.1% safely over a 30 year horizon. Many retirees could withdraw much more, and he reiterates in his latest book that less than 1% of the 349 scenarios were at or close to the 4.7% worst case scenario withdrawal rate. He calls this safe withdrawal rate someone's personal SAFEMAX and provides data around trying to determine your own SAFEMAX in retirement. He does caution that while historical data serves as a guide, it does not predict the future and because of that he also provides suggestions on how to adjust within retirement as well so that you do not run out of money.
While not perfect, either the original 4% or the new and improved 4.7% rule can help us in retirement planning to approximate a "minimum" projected income from a specific portfolio total in retirement. And that brings us to an extension of the 4% rule, called the "25x your income rule." If you desire a $100,000 income in retirement, multiply that by 25 and assuming the 4% rule for rate of withdrawal in the first year, adjusted for cost-of-living each subsequent year, you will need $2.5 million to produce that $100,000 dollar income. This is the "Google" answer for the question "how to retire with $100,000 a year?" Keep in mind, most of us will have other income from other sources. Some examples of that are Social Security, pension income, rental income or even annuity payments. Let's say a couple is soon retiring and will each draw $1,600 in social security for a total of $3,200 a month, and one of the spouses has a teaching pension of $3,200 a month. That would be a total household income of $6,400 a month or $76,800 annually. Now if they want an annual salary of $120,000 a year, if you reduce that need by their $76,800 guaranteed income, that leaves a gap of $43,200. Applying the Rule of 25x Income, that requires a nest egg of $1,080,000 at a 4% withdrawal rate. And let's say they decided to be more conservative with a $100,000 a year income with the same $76,800 annually, that would mean a gap of $23,200 a year and would need a nest egg of $580,000 using a 4% withdrawal rate.
But I have digressed. Going back to the wisdom of Warren Buffett, it is not about being "precise," that would take a very short-term horizon and a crystal ball to predict the future. In the long run, being "approximately right" by investing and checking in periodically with your financial planner is more realistic plan for a successful retirement. As retirement gets closer, then your planner can help you be more precise in what you will need in retirement to support your desired lifestyle. Including where that income will come from and to help to determine your own personal withdrawal plan from your retirement accounts.
Whether retirement is 20 plus years away for you, or just around the corner, it is never too early to plan for your future. General advice is really not that helpful for feeling confident, and your retirement is too crucial to leave it up to chance. Even more dangerous would be to rely on someone spewing advice on Reddit, or anywhere else on the internet (me included). Start dreaming about what you want your retirement to be like. And if you are married, start asking your spouse what they want as well. Then take the step towards making that a reality by meeting with a financial planner.
A general disclaimer, I am not a financial expert, nothing in this article should be taken as financial advice. It is simply my opinion and the sharing of my own journey navigating the abundance of information on this topic. I am happy you are here, and if you have not already, make sure to subscribe. Next week, we will start the conversation on "How to choose a financial planner?" See you next Monday!
