Your Retirement Number: Three Methods Compared
Example: Current annual income: 90000 $ · Current annual spending: 70000 $ · Income replacement target: 80 % · Expected annual Social Security benefit: 22000 $
| Highest retirement number (most conservative) | $1,750,000 |
| Method 1: 25x current annual expenses | $1,750,000 |
| Method 2: 80% income-replacement minus SS | $1,250,000 |
| Method 3: Expense-based (retirement lifestyle) | $1,487,500 |
| Lowest retirement number (most optimistic) | $1,250,000 |
Worked example
For a household with $90,000 income, $70,000 in spending, and $22,000 expected SS: Method 1 (25x expenses) = $1,750,000. Method 2 (80% income minus SS) = (72,000 − 22,000) × 25 = $1,250,000. Method 3 (85% of current expenses × 25) = $1,487,500. The range is $1,250,000 to $1,750,000 — a $500,000 spread driven entirely by which assumptions you trust.
Frequently asked questions
Which method should I use?
Financial planners most often use an expense-based approach because it reflects actual lifestyle, not income (which includes taxes and savings you will not need in retirement). The 25× rule is the easiest to apply and the most conservative. Income-replacement is common in corporate HR tools and benefits disclosures.
Does the 25x rule account for inflation?
The 4% rule (behind the 25× multiplier) is based on historical returns net of inflation in a 60/40 portfolio — so yes, it incorporates historical inflation implicitly. For long retirements (35+ years) or high-inflation environments, some planners use 30× (3.3% withdrawal rate) as a more conservative target.
Why does retirement spending often drop?
Retirees typically eliminate commuting, work clothing, professional association dues, and peak-earning lifestyle spending. The 85% factor in Method 3 reflects this empirically. However, healthcare, travel (especially in the 'go-go' years 65–75), and leisure can offset these savings.
How does Social Security change my number?
SS income directly reduces the portfolio gap you need to fund from savings. A $22,000/year SS benefit reduces your required portfolio by $550,000 versus a scenario with no SS income (22,000 × 25 = $550,000). Maximizing your SS benefit — often by delaying — is one of the highest-return actions available.