Wondering how much money you’ll need to retire without running out of funds? The 4% Rule is a popular and easy-to-use guideline that can help you estimate your retirement savings goal.
Here’s the gist:
To sustain your lifestyle in retirement, aim to save 25 times your expected annual expenses. Then, you can safely withdraw 4% of that amount each year, adjusted for inflation, with a strong likelihood—about 95%—that your money will last at least 30 years.
Example time:
Say Marcus expects to spend $60,000 per year in retirement.
Using the 4% rule, he should aim to save $1.5 million before retiring.
($60,000 x 25 = $1,500,000)
Each year in retirement, Marcus could withdraw 4% of that amount—$60,000 in the first year—and slightly more in following years to keep pace with inflation.
Why the 4% Rule Works:
- ✅ It’s not based on age – It’s all about your expected spending, which makes it great for early retirees or those working into their 70s.
- ✅ It adapts to your plans – Retiring to a lower-cost area? You may not need as much saved. Dreaming of first-class flights and gourmet dining? You’ll want to bump up that target.
- ✅ It offers clarity – Even if retirement feels far off, this rule helps you reverse-engineer your savings goals.
Of course, the 4% rule is just a starting point. Life is full of variables, and your actual retirement needs may differ. But it’s a solid framework to help you plan with more confidence and less guesswork. What do you think? Does this accurately take into account other sources of income like Social Security?
