How Much You Actually Need to Retire

4 min read

Retirement Planning

"How much do I need?" is the most common — and most anxiety-provoking — retirement question. The answer depends on three things: what you spend, what you'll receive from Social Security, and where you'll live. Here's how to get a real number.

Start With Your Spending, Not a Rule of Thumb

The old rule — "you need 80% of your pre-retirement income" — is lazy math. What you actually need to know is: how much will you spend per year in retirement?

Build a realistic budget. Not what you spend today (commuting costs, work clothes, daycare might vanish), but what you'll actually spend:

Housing (mortgage/rent, property tax, insurance, maintenance)
Healthcare (Medicare premiums, Medigap, out-of-pocket)
Food, transportation, utilities
Travel, hobbies, gifts, entertainment
Taxes on retirement income

A single person in a medium-cost city might land at $55,000/year. A couple who owns their home free and clear might need $65,000. A couple who wants to travel extensively could hit $100,000+. There's no one number.

Factor in Social Security

Your portfolio doesn't need to cover everything — Social Security covers a portion. Create an account at ssa.gov to see your estimated benefit at different claiming ages.

Example: You need $60,000/year and expect $24,000/year from Social Security at age 67. Your portfolio gap is $36,000/year.

Using the 4% rule: $36,000 × 25 = $900,000 portfolio target.

That same person without Social Security would need $60,000 × 25 = $1,500,000. Social Security shrank their required portfolio by $600,000 — 40%.

Healthcare: The Wild Card

Fidelity estimates a 65-year-old couple retiring today will spend roughly $315,000 on healthcare over the course of retirement (Medicare premiums, supplemental insurance, prescription drugs, dental, vision, and out-of-pocket costs — not including long-term care). For a single retiree, estimate $150,000–$175,000 total.

This isn't an annual expense you budget monthly; it's a lump-sum reserve you need in your portfolio. Building an HSA during your working years — and investing it — is the most tax-efficient way to prepare for this.

Long-term care is separate. About 70% of people turning 65 will need some form of long-term care, and the median annual cost of a private room in a nursing home is over $115,000. Long-term care insurance or a dedicated reserve may be necessary.

Location Matters Enormously

Scenario	Annual Spend	Portfolio Target (4% rule)
Single, LCOL city, paid-off home, modest lifestyle	$35,000	$875,000
Single, MCOL city, renting	$50,000	$1,250,000
Couple, MCOL, own home, one big trip/year	$70,000	$1,750,000
Couple, HCOL, travel-heavy lifestyle	$100,000	$2,500,000

Remember to adjust for Social Security. If the couple in row three receives $36,000 combined from Social Security, the portfolio only needs to cover $34,000 — a target of $850,000, not $1,750,000.

A Simple Calculation Framework

Estimate annual retirement spending — be honest and specific
Subtract guaranteed income — Social Security, pensions, annuities
Multiply the gap by 25 — that's your portfolio target (based on the 4% rule)
Add a healthcare reserve — $150,000–$300,000 depending on household size and health
Adjust for taxes — remember that withdrawals from Traditional 401(k)/IRA are taxable

Example calculation: You're 40, planning to retire at 65. You estimate $70,000 in annual spending. You expect $28,000 from Social Security. Your gap is $42,000. Multiply by 25: $1,050,000. Add $200,000 for healthcare: $1,250,000 is your target.

To get there in 25 years, assuming 7% real returns and $100,000 already saved, you need to invest roughly $20,000/year ($1,667/month). With employer match and tax-deferred growth, a maxed-out 401(k) covers most of that.

The key insight: you probably need less than you think — once you actually factor in Social Security and match your target to your real spending, not an arbitrary percentage of your working income. Use our FIRE number calculator to find your personal retirement target.