By Jay Fedak, CFP® | Fee-Only Financial Planner, New Milford, CT
If you type “How much do I need to retire?” into Google, you will quickly discover that there is no shortage of opinions.
Some say $1 million.
Others say $2 million.
A few headlines suggest $5 million or more, which is about the point where many people quietly close the browser tab and go make a sandwich.
So what is the real answer?
Unfortunately—at least at first—the answer financial planners often give is the two words people love to hate:
“It depends.”
Now before you stop reading and accuse me of giving the most cliché answer in personal finance, stay with me for a moment.
There actually is a way to think about this question that produces a useful estimate. In fact, there are a few simple guidelines that can get us surprisingly close to a reasonable number.
But to understand why those guidelines work, we need to look at a few of the variables that shape the outcome.
And yes, as you may have guessed, many of them fall under the famous category of… “it depends.”
Don’t worry—we’re not going to turn this into a 400-page financial planning textbook.
Instead, we’re going to do something more practical: take the hundreds of variables that could affect retirement and narrow them down to the few that actually matter most.
Along the way we’ll talk about:
the rule of thumb that suggests saving 20–25 times your salary
why many people underestimate how much retirement will cost
the risks that can quietly derail a retirement plan
and why market events, inflation, and something called sequence-of-returns risk matter more than most people realize
By the end, you should have a much clearer sense of how to think about the question:
How much do I really need to retire?
Let’s start with one of the most common rules of thumb.
A Simple Starting Point: The “25× Salary” Rule
One guideline that appears frequently in retirement discussions is the idea that you may need roughly 20 to 25 times your annual salary saved before retiring.
Why use salary?
Because most people know what they earn each year, but far fewer people know exactly what they will spend in retirement. Salary provides a simple reference point.
There is also another practical reason. For many households, income and spending tend to be closely related. While some people save a large portion of their income, national data consistently shows that many households save relatively little.
In other words, what people earn often provides a reasonable approximation of the lifestyle they are currently supporting.
Using this rule of thumb, the math becomes fairly straightforward.
Someone earning $80,000 per year might target roughly $1.6–$2 million in retirement savings.
Someone earning $120,000 per year might aim for somewhere around $2.4–$3 million.
This guideline is closely connected to a retirement planning concept known as the 4% rule, which suggests that withdrawing about 4% of a portfolio annually may allow savings to last for several decades.
But before anyone runs off to calculate 25 times their salary and call it a day, we should pause for a moment.
Because—here it comes again—the real answer still depends.
And the biggest reason is that retirement planning involves several variables that can dramatically change the outcome.
Fortunately, we don’t need to analyze hundreds of them.
A small number of factors tend to drive most retirement plans.
The Variables That Actually Matter
At this point it may sound like retirement planning involves an endless list of unknowns. And technically, that’s true. There are hundreds of variables that could influence the outcome.
But the good news is that a relatively small number of factors tend to drive most retirement plans.
Think of it like cooking. There may be dozens of ingredients in the pantry, but only a handful actually determine how the dish turns out.
Let’s focus on the ones that matter most.
When You Retire
Retirement age is one of the biggest drivers of how much money you need.
Someone retiring at 55 may need their savings to last 30 or even 35 years. Someone retiring at 67 may need their portfolio to last closer to 20–25 years.
Those additional years require more savings simply because your investments must support spending for a longer period of time.
So if you’re noticing a theme emerging here, you’re absolutely right.
Once again… it depends.
How Long You Live
Longevity is the other side of the retirement equation.
None of us knows exactly how long we will live, which makes retirement planning slightly awkward. We are essentially planning for a future that could last anywhere from 15 years to 35 years.
Most retirement plans assume a retirement lasting 25–30 years, which helps ensure the plan does not run out of money if someone lives well into their nineties.
How Much Income Your Lifestyle Requires
This is the engine that drives the entire calculation.
If your lifestyle requires $60,000 per year in retirement, your savings target will be very different from someone who expects to spend $120,000.
This is also why the 25× salary rule exists in the first place. It attempts to approximate the amount of income a portfolio may need to produce each year.
Guaranteed Income Sources
Not all retirement income needs to come from investments.
Many retirees receive income from sources such as:
Social Security
pensions
rental income
part-time work
The more of your spending that can be covered by reliable income sources, the less pressure there is on your portfolio.
Investment Returns
Finally, investment returns matter a great deal.
A portfolio invested primarily in equities may experience more volatility but may also generate higher long-term growth. A portfolio invested mostly in fixed income may be more stable but may grow more slowly.
Finding the right balance between growth and stability becomes particularly important once withdrawals begin.
The Risks That Can Change the Plan
Retirement planning would be much easier if markets moved in straight lines and the economy behaved predictably.
Unfortunately, history suggests otherwise.
Several risks can affect whether a retirement plan succeeds.
Sequence of Returns Risk
This is one of the most important retirement risks that many people have never heard of.
Sequence of returns risk refers to the order in which market returns occur.
Two investors could earn the exact same average return over time but experience very different outcomes depending on when the market declines occur.
If market downturns happen early in retirement while withdrawals are being taken, the damage to the portfolio can compound quickly.
Portfolio Safety and Asset Allocation
The way a portfolio is invested also plays a major role.
A portfolio invested entirely in equities may grow faster but will experience larger swings in value. A portfolio invested heavily in fixed income may be more stable but may struggle to keep pace with inflation over a long retirement.
Most retirement portfolios attempt to balance growth assets and stability assets in a way that supports long-term income needs.
Risk Tolerance vs. Risk Capacity
Another important concept is the difference between risk tolerance and risk capacity.
Risk tolerance describes how comfortable someone is with market volatility.
Risk capacity refers to how much risk someone can realistically afford to take based on their financial situation.
A successful retirement plan balances both.
Black Swan Events
Every so often, markets experience events that are rare, unexpected, and disruptive.
Major financial crises, recessions, or geopolitical shocks can cause markets to behave in ways few people anticipated.
These are often called black swan events. While they cannot be predicted, a diversified portfolio and a thoughtful withdrawal strategy can help reduce their impact.
So… How Much Do You Really Need to Retire?
After all of this discussion, you might still be hoping for a single clean number.
Something like:
“Just save $1.7 million and you’ll be fine.”
Unfortunately, retirement planning does not work that way. If it did, financial planners would have much shorter meetings and a lot more free afternoons.
But the good news is that answering the question “How much do I need to retire?” is not nearly as mysterious as it first appears.
When you strip away the noise, the process usually comes down to four basic steps.
Estimate the lifestyle you want to support in retirement.
Subtract reliable income sources such as Social Security or pensions.
Determine how much income your investments must provide.
Build a portfolio and withdrawal strategy designed to support that income over time.
Along the way, a good retirement plan also accounts for risks like inflation, market volatility, and the occasional economic surprise that nobody saw coming.
In other words, the goal is not to guess a magic number.
The goal is to build a plan that can adapt as life unfolds.
For some people, that plan may require $800,000. For others, it may require $2 million or more. The difference depends on lifestyle, income sources, retirement timing, and how long the plan needs to last.
Which brings us back, one last time, to the famous answer:
It depends.
But hopefully by now those two words feel a little less frustrating and a little more practical.
Because once you understand the moving pieces, the question “How much do I need to retire?” becomes much easier to answer.
If you find yourself asking these questions and would like help working through them, you don’t have to figure it all out on your own. Retirement planning involves many moving pieces, and having a thoughtful plan can make a significant difference in how confidently you approach the years ahead. As a fee-only financial planner, I work with individuals and families to help them think through decisions like these and build retirement plans designed to support the life they want to live. If you would like to learn more about my approach to financial planning or start a conversation about your own situation, feel free to visit my website and either give me a call, or book a convenient time for you on my calendar. This is completely FREE of charge. https://fedakfinancialplanning.com/