The 25× Rule in 30 Seconds
Take your expected annual retirement spending. Multiply by 25. That's your number. If you want to spend $60,000/year in retirement, you need $1.5M invested. If you want to spend $100,000/year, you need $2.5M.
Why 25? Because it's the inverse of 4%. If your portfolio can safely sustain a 4% withdrawal rate, 25× expenses covers you for 30+ years.
Where the 4% Rule Comes From
In 1994, financial planner William Bengen studied every rolling 30-year period in U.S. stock and bond history and asked: what withdrawal rate would have survived the worst possible starting year? His answer: 4%, adjusted for inflation each year. Later work (the Trinity Study) confirmed this gave a 95%+ success rate for 30-year retirements.
The rule assumes a 50/50 to 75/25 stock/bond portfolio. Too conservative (100% bonds) or too aggressive (100% cash) both lower the safe rate.
Calculate Your Real Retirement Spending
The big mistake: people assume they'll spend the same in retirement as they do now. Reality is more nuanced.
- Housing — if paid off, costs drop dramatically (only taxes + insurance + maintenance)
- Kids — out of the house, gone from the budget
- Commuting, work clothes, lunches — gone
- Health care — major increase (expect $600-1,200/month for a couple pre-Medicare)
- Travel, hobbies — often increase in early retirement
- Long-term care — possible late-retirement expense, $80k-$150k/year in a facility
A common rule of thumb: retirement spending = 70-85% of pre-retirement gross income. But build it from the bottom up if you can.
Social Security — How Much to Count On
For someone earning $100,000/year over their career, Social Security at age 67 pays roughly $35,000-$40,000/year in 2026 dollars. Delay to 70 and it's about 24% higher (~$47,000). Take it at 62 and it's about 30% lower (~$27,000).
That reduces your need. If you want $80,000/year gross and SS provides $35,000, your portfolio only needs to generate $45,000 — so 25× that = $1.125M, not $2M.
The Compound Math That Gets You There
Start at 25, invest $500/month at 8% return: $1.75M at age 65.
Start at 35, same $500/month at 8%: $745K at age 65.
Start at 45, same $500/month at 8%: $294K at age 65.
This is why personal finance people become evangelists. The first 10 years of saving matter more than the last 10 years of saving — entirely because of compound growth.
Savings Rate > Income
A $150,000 earner saving 10% = $15,000/year and will retire in ~42 years.
A $60,000 earner saving 30% = $18,000/year and will retire in ~25 years.
High income with low savings rate is often worse than moderate income with a high savings rate. The less you spend, the less you need to retire — it's a double win.
The "Die With Zero" Camp
Bill Perkins' book Die With Zero argues that optimizing for a huge retirement balance you'll never spend is a mistake. Spend money on experiences while young and healthy; don't over-save at the cost of your best decades. The ideal glidepath: spend a lot in your 20s-40s, pile up in your 50s-60s, start decumulating at 65.
Putting It All Together: A Quick Checklist
- Estimate annual retirement spending in today's dollars (start: 75% of current gross)
- Subtract expected Social Security income
- Multiply the gap by 25. That's your portfolio target.
- Open a free 401(k) projector, enter today's balance + monthly contributions, and see if you're on track.
- If not on track, raise your contribution percentage (easier) before lowering your retirement target (harder).