Retirement planning by the numbers: how much do you actually need?
Most people guess at their retirement number. Here's how to calculate it properly — from the 4% rule to Social Security, 401(k)s, and Roth IRAs.
The most common retirement question is also the hardest to answer: “How much is enough?” The number depends on when you retire, where you live, how long you live, and what kind of life you want. But there is a structured way to think about it — and it starts with a few key formulas rather than a guess.
The 4% rule (and its limits)
The classic guideline says you can safely withdraw 4% of your retirement portfolio in the first year, then adjust for inflation each subsequent year, with a high probability of not running out of money over 30 years.
This means your target nest egg is roughly:
Target = Annual spending ÷ 0.04If you need $60,000 per year in retirement, the target is $60,000 ÷ 0.04 = $1,500,000.
The rule comes from the famous 1994 Trinity Study, which analyzed historical market returns. But it has real limitations: it assumes a roughly 50/50 stock-bond portfolio, it’s based on US historical returns, and it may be too aggressive during extended low-growth periods. Many financial planners now suggest 3.5% or even 3% for added safety.
How to estimate your annual retirement spending
A common starting point is 70–80% of your pre-retirement income. If you earn $100,000, expect to need $70,000–$80,000 per year in retirement. You’ll likely spend less on commuting, work clothes, and payroll taxes — but potentially more on healthcare and travel.
Subtract expected Social Security or pension income from that number. If you need $75,000 and Social Security covers $25,000, your portfolio needs to generate $50,000 per year. At a 4% withdrawal rate, that’s a $1,250,000 target.
Use the Retirement Calculator to plug in your own numbers and see how different withdrawal rates affect your timeline.
The three main retirement accounts
Each account type has different tax treatment, and using all three strategically can save tens of thousands of dollars:
1. Traditional 401(k). Contributions are pre-tax, lowering your taxable income today. The money grows tax-deferred, and you pay income tax on withdrawals in retirement. In 2026, the contribution limit is $23,500 ($31,000 if you’re 50+). Many employers match contributions — that’s free money you should never leave on the table. The 401(k) Calculator shows how employer matching and consistent contributions compound.
2. Roth IRA. Contributions are after-tax, but withdrawals in retirement are completely tax-free. This is powerful if you expect to be in a higher tax bracket later — which is true for many early-career workers. The 2026 contribution limit is $7,000 ($8,000 if 50+). Use the Roth IRA Calculator to compare Roth vs. traditional outcomes.
3. Pension. If you have a defined-benefit pension, it provides guaranteed income — usually based on years of service and final salary. Treat it as a stable floor of retirement income. The Pension Calculator estimates your monthly benefit based on your plan’s formula.
The savings rate that works
Research by Fidelity suggests these age-based milestones:
- Age 30: Save 1× your annual salary
- Age 40: Save 3× your annual salary
- Age 50: Save 6× your annual salary
- Age 60: Save 8× your annual salary
- Age 67: Save 10× your annual salary
If you earn $80,000, that’s $80,000 saved by 30, $240,000 by 40, and so on. These are rough guidelines, not guarantees — but they give you a trajectory to measure against.
For most people, reaching these milestones requires saving 15–20% of gross income consistently. If that feels out of reach, start lower and increase by 1% each year. Even 10% consistently invested makes an enormous difference over three decades.
Inflation: the silent retirement killer
At 3% average inflation, prices double roughly every 24 years. If you need $60,000 per year today, you’ll need about $121,000 per year in 24 years just to maintain the same purchasing power.
This is why retirement planning can’t stop at a dollar amount — it has to account for inflation-adjusted withdrawals. When using the Savings Goal Calculator, make sure your target accounts for inflation by using a real (after-inflation) rate of return rather than a nominal one. Historically, a diversified portfolio has returned roughly 7% nominally — or about 4.5% after inflation.
Start now, not later
Compound interest is exponential, which means the cost of waiting is staggering. A person who starts investing $500/month at age 25 and earns 7% will have about $1,200,000 by 65. Someone who starts at 35 with the same monthly amount reaches only about $567,000. Ten lost years cost over $600,000 — far more than the $60,000 in missed contributions.
The best retirement plan is the one you start today.