How Much Do You Need to Retire?

How Much Do You Need to Retire?

Most people either have no retirement number or they've picked one that sounds big — $1 million, $2 million — without knowing if it's actually enough for their life. Both are mistakes.

Your retirement number isn't arbitrary. It comes directly from how much you plan to spend. Here's how to figure it out.

Start With the 4% Rule

The most widely used retirement framework is the 4% rule: if you withdraw 4% of your portfolio in year one, then adjust for inflation each year after, your money has historically lasted 30+ years.

Working backwards: if you need $50,000/year in retirement, you need $1.25 million saved. If you need $80,000/year, you need $2 million. The formula is simple — divide your annual spending by 0.04.

This assumes a standard retirement of roughly 30 years. If you plan to retire early, you may want to use 3–3.5% to be safer over a longer horizon.

The Number That Actually Matters: Your Annual Expenses

Most people overestimate how much they'll spend in retirement. Work-related costs disappear — commuting, work clothes, lunches out. Kids are (hopefully) financially independent. The mortgage may be paid off.

A reasonable starting estimate is 70–80% of your current pre-retirement income. But the more accurate approach is to build a retirement budget from scratch: housing, food, healthcare, travel, hobbies, and any debt you'll still be carrying.

Healthcare deserves special attention. If you retire before 65, you'll need to cover your own insurance before Medicare kicks in. That can run $500–$1,500/month depending on your age and coverage level — a significant line item most people underestimate.

Social Security Changes the Number

Social Security income reduces how much your portfolio needs to cover. If you're entitled to $2,000/month in Social Security, that's $24,000/year you don't need to withdraw from savings.

If your annual retirement expenses are $60,000 and Social Security covers $24,000, your portfolio only needs to generate $36,000/year. At 4%, that's $900,000 — not $1.5 million.

Delaying Social Security from 62 to 70 increases your monthly benefit by roughly 76%. If you can afford to wait, it's one of the highest-return decisions in retirement planning.

How Your 401(k) Gets You There

The 401(k) is the primary retirement savings vehicle for most workers. Contributions are pre-tax, growth is tax-deferred, and employer matches are essentially free money.

The employer match is the most important number in your 401(k). If your employer matches 50% of contributions up to 6% of salary, you need to contribute at least 6% to capture the full match. Not doing so is leaving part of your compensation on the table.

Beyond the match, how much you contribute and how early you start matters enormously due to compounding. $500/month invested at 30 grows to roughly $1.1 million by 65 at a 7% average return. The same $500/month starting at 40 grows to about $525,000. Starting 10 years earlier roughly doubles the outcome.

The Gap Between Where You Are and Where You Need to Be

Most people don't know this number. They know their 401(k) balance, but not whether it's on track for the retirement they actually want.

A rough benchmark: by 30, aim to have 1x your salary saved. By 40, 3x. By 50, 6x. By 60, 8x. These aren't rules — they're checkpoints. If you're behind, the lever to pull is contribution rate, not investment returns.

Run Your Own Numbers

Generic rules of thumb can only take you so far. Your retirement number depends on your salary, contribution rate, employer match, years until retirement, expected return, and how much you actually plan to spend.

Use the MoneyDecoded 401(k) Calculator to see how your current contributions grow over time, how much your employer match adds up to, and whether you're on track to hit your retirement number.

The Mistake That Costs the Most

It's not picking the wrong funds. It's waiting. Every year you delay saving for retirement costs you more than a year of contributions — it costs you years of compounding on those contributions.

The second most expensive mistake is not capturing the full employer match. Before optimizing anything else about your retirement strategy, make sure you're contributing enough to get every dollar your employer will match.

Everything else — fund selection, asset allocation, Roth vs. traditional — matters, but less than those two decisions.

See if your 401(k) is on track →

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