Key Takeaways
- There’s no universal number. Your target follows your spending, not a rule of thumb.
- Three inputs set it: your spending, your guaranteed income, and your time horizon.
- Subtract Social Security before you size the portfolio. This one step often cuts the target in half, and most people skip it.
- A common shortcut is 25 times the gap you need your savings to cover. Useful for a first pass, not a final answer.
- Where you live changes the math. Nevada has no state income tax, so retirement withdrawals and Social Security escape state tax here.[1]
There’s no single number, and anyone who hands you one without asking what you spend is guessing. Your real target starts with your annual spending, subtracts the income you’ll get regardless of your portfolio, and then asks how large a nest egg it takes to cover what’s left for as long as you live.
Think of it as a physical for your retirement. A doctor doesn’t hand you a target weight before stepping on the scale and asking about your life. The number comes out of the exam, not before it.
Let’s build yours instead of borrowing someone else’s.
Why isn’t there just one retirement number?
Because the inputs are personal, and they vary more than people expect.
Picture two couples with identical savings. One has a paid-off house, simple tastes, and a pension. The other has a mortgage, a travel habit, and nothing guaranteed beyond Social Security. A number that’s generous for the first is thin for the second.
The target follows the life. Not the other way around.
In my book Your Fiscal Physical, I put it simply: to properly plan for retirement, you must start with the end in mind. Figure out what you want the money to do, then work backward to the number.
What about the common rules of thumb?
They’re a decent first sketch and a terrible final answer.
You’ve heard them. Save ten times your income. Replace 80% of your pre-retirement pay. These aren’t useless, and they beat having no plan at all. But a replacement-rate rule assumes your spending tracks your income, which isn’t true for a lot of good savers. A savings-multiple rule ignores whether you have a pension.
Use them to start the conversation. Then do the three steps below, because that’s where the real number lives.
Input one: what will you actually spend?
Start with what you spend now, then adjust for how retirement changes it.
Some costs fall. Commuting, work clothes, payroll taxes, and the mortgage if it’s gone by then. Some rise, and healthcare is the big one. Some don’t move at all.
Here’s a test I like from the book: look at how you spend on an extended weekend. A retired week looks a lot more like a long weekend than a work week. You’re up, you’re out, you’re doing things that cost money at hours you used to be at a desk. People consistently underestimate this.
Be honest about the shape of it, too. Most retirements aren’t flat. Spending often runs high in the first decade, when you’re healthy and finally have time, dips in the middle, then rises again later as health costs climb. A flat assumption misses that arc entirely.
Input two: what income will you already have?
Your portfolio doesn’t have to cover your whole life. It only has to cover the gap.
For most retirees, Social Security is the largest guaranteed piece, and when you claim it changes the amount meaningfully. Claiming at 62 cuts your benefit substantially, and waiting until 70 raises it.[2] If you also have a pension, an annuity, rental income, or part-time work, each one shrinks what your savings has to produce.
Subtract all of it from your spending. What’s left is the gap. That gap, not your total spending, is what sizes your nest egg.
This is why two people with the same portfolio can have completely different answers to “am I okay?”
Input three: how long does it need to last?
Longer than most people plan for. Retire at 62 and your money may need to work for 30 years or more.
That’s a long time for a portfolio to keep up with inflation and keep paying you. It’s also why withdrawal strategy matters as much as the balance. You’ve probably heard of the 4% rule, which suggests withdrawing about 4% in year one and adjusting for inflation after that. It came out of research by William Bengen and the Trinity Study, and it’s a useful reference point.
It’s also just a rule of thumb, built on a specific set of historical assumptions. Whether it holds for you depends on your timeline, your mix of investments, and what markets do in your first few years. We dug into it in episode 33 of The Fiscal Physical Podcast, “The 4% Rule Explained,” and revisited it more recently in episode 136 on safe withdrawal rates.
How do you actually calculate your retirement number?
Here’s the five-step version I use in the book, run with round numbers.
- Step one: define what you want. Where you live, what you do, who you help.
- Step two: cost that life per year. Not your income. Your spending.
- Step three: subtract guaranteed income. Social Security, pension, anything that arrives regardless of markets.
- Step four: size the nest egg for the gap. A common first pass is 25 times the gap.
- Step five: review it every year. Your life changes. So does the number.
A worked example
Here’s a hypothetical couple. Illustrative figures, not a client, meant to show the mechanics.
Dave and Karen are both 63 and want to retire next year. They’ve costed out their life at $120,000 a year, travel included. Between them, Social Security will pay about $60,000 a year.
So how big does their portfolio need to be? $3 million? More?
Their gap is $60,000, not $120,000. Twenty-five times $60,000 is $1,500,000.
The naive version of this math, $120,000 times 25, gives $3,000,000. Subtracting guaranteed income first cut the target in half. Same couple, same lifestyle, half the number, and the only thing that changed was doing the steps in the right order!
That’s the calculation almost nobody runs before they panic about their balance.
Now the honest part. This is a first pass, not a plan. It assumes a steady 4% draw, a flat spending line, and Social Security starting right at retirement. Change any one of those and the number moves. What it’s good for is telling Dave and Karen they’re in a different conversation than they thought they were.
Does where I live change the number?
More than most people expect, and it works in your favor here.
Nevada has no personal income tax. Your IRA withdrawals, your pension, and your Social Security all escape state income tax.[1] Compare that with California’s top marginal rate and the difference on a six-figure retirement income is real money every single year.
Lower taxes mean a smaller portfolio funds the same lifestyle. If Dave and Karen need $120,000 to live and none of it goes to a state tax bill, their $1,500,000 target holds. Move that same couple to a high-tax state and they need to withdraw more to spend the same amount, which means they need a bigger nest egg to start with.
We ran the full comparison in our post on how much you can save on taxes by retiring in Nevada instead of California.
What actually threatens a retirement number?
The target is the easy part. What derails retirements is mostly downstream of it.
Inflation quietly erodes what your money buys across a 30-year retirement. A number that looks comfortable today buys less every year.
Healthcare and long-term care are the wild cards. These costs are large, hard to predict, and routinely underestimated.
Taxes don’t stop when the paychecks do. A large traditional IRA creates required withdrawals at 73 or 75, depending on your birth year, and they’re fully taxable. Our post on required minimum distributions and Medicare premiums covers what that looks like.
Sequence of returns is the one almost nobody warns you about. A market drop in your first few years of retirement, while you’re pulling money out, does far more lasting damage than the same drop ten years later. Same average return, very different outcome, because you sold shares at the bottom to pay for groceries.
A real plan accounts for these. A rule of thumb can’t.
Frequently Asked Questions
How much money do I need to retire?
There’s no single figure. Cost out the life you want per year, subtract the income that arrives regardless of markets, and size your portfolio to the gap that’s left. A common first pass is 25 times that gap.
Is the “save 25 times your spending” rule accurate?
It’s a reasonable first pass, not a precise answer. It works better when you apply it to the gap between your spending and your guaranteed income, rather than to your total spending. It also assumes a steady withdrawal rate and a flat spending line, and real retirements are neither.
Does Social Security really change the number that much?
Yes. For a couple spending $120,000 a year with $60,000 of combined Social Security, subtracting that income first takes the 25x target from $3,000,000 down to $1,500,000. It’s the single largest adjustment most people can make to their estimate.
Does living in Nevada reduce how much I need to retire?
It helps. Nevada has no state income tax, so retirement withdrawals, pension income, and Social Security aren’t taxed at the state level.[1] You keep more of every dollar you withdraw, which means a given portfolio funds more spending than it would in a high-tax state.
What’s the biggest risk to my retirement savings?
Sequence of returns risk is among the most damaging and least understood. A market drop early in retirement, while you’re withdrawing, hurts far more than the same drop later. Inflation, healthcare costs, and taxes are the other major ones.
How long should I plan for my money to last?
Longer than you might think. A retirement starting in your early sixties may need to fund 30 years or more. Planning for a long life is safer than planning for an average one.
Educational content only. Not personalized investment, tax, or legal advice. Any example shown is hypothetical and does not represent an actual client, account, or result.
Ready to see how this plays out for you?
Rules of thumb get you in the neighborhood. Your actual number depends on your spending, your Social Security timing, your tax picture, and how long you need the money to work.
Run your own numbers. Try our retirement planning calculator and retirement withdrawal calculator.
Or just talk it through. Book a QuickFit call. Short, no pressure, just to see whether we’re a fit.
Want the tax side too? The Retirement Tax Bomb is our free guide to the tax bill building inside your retirement accounts.
More on how we approach retirement planning, our retirement needs analysis episode on The Fiscal Physical Podcast, and our post on retiring in Nevada instead of California.
Alchemy Wealth Management is an investment adviser registered with the State of Nevada. This article is for educational purposes only. It is not personalized investment, tax, or legal advice, and it is not a recommendation to buy, sell, or hold any security or to pursue any particular strategy. Investing involves risk, including the possible loss of principal, and past performance does not guarantee future results. Dave and Karen are hypothetical and illustrative. They are not clients, and the figures are not drawn from any actual account. The 25x figure and the 4% rule are widely cited rules of thumb, not guarantees. They rest on historical return assumptions that may not hold in the future, and the example should not be read as a projection or estimate of any particular investment result. Nothing here is a guarantee or assurance that any portfolio will last a given number of years or support a given level of spending. Tax rules and Social Security benefits change, and future law may differ materially from current law. Alchemy Wealth Management does not provide tax or legal advice. Please consult a qualified tax or legal professional about your own situation.
Sources
[1] State of Nevada, Department of Taxation. Nevada imposes no personal income tax. See also Nevada Constitution Art. 10, sec. 1(9). https://tax.nv.gov/
[2] Social Security Administration, “Benefits Planner: Retirement Age and Benefit Reduction.” https://www.ssa.gov/benefits/retirement/planner/agereduction.html
