How Much Do I Need to Retire? A Worked Answer
The question sounds like it needs your salary. It doesn't. It needs your spending. Here is the whole calculation, with the math visible at every step.
Pull up ten retirement calculators and you may get ten different answers. Most of them start from the wrong variable: your income. The number that actually determines your retirement need is your spending — and once you know it, the calculation takes about a minute.
Step 1: Estimate your retirement spending
Ignore the "80% of income" rule of thumb; it exists because it's easy, not because it's true. Some costs fall in retirement (commuting, payroll taxes, saving for retirement itself), some rise (healthcare, travel). A reasonable starting point is your current spending minus work costs — then adjust for the life you actually plan to live. Our worked example uses $60,000 a year.
Step 2: Divide by a withdrawal rate
The withdrawal rate is the percentage of the portfolio you spend in year one. The famous 4% rule says a 30-year retirement survived almost every historical period when the first-year withdrawal was 4%, adjusted for inflation after that. So:
portfolio needed = annual spending ÷ withdrawal rate| Withdrawal rate | Portfolio for $60,000/yr | What it means |
|---|---|---|
| 3% (cautious) | $2,000,000 | Survived every tested historical period; plan lives longer than 30 years |
| 4% (classic) | $1,500,000 | The Trinity-study benchmark for 30-year retirements |
| 5% (aggressive) | $1,200,000 | Worked in most periods; fails in the worst ones |
Same spending, three very different targets. The rate is an assumption — which is why the retirement calculator shows it as an editable input rather than a verdict.
Step 3: Subtract guaranteed income
Social Security and any pension reduce the gap your portfolio must fill. If Social Security covers $25,000 of your $60,000, the portfolio only needs to produce $35,000 a year — at 4%, that's $875,000 instead of $1,500,000.
Step 4: Stress-test the result
Here's what $1,500,000 actually does in a 5% return / 2% inflation world, withdrawing $60,000 the first year and raising the withdrawal with inflation every year after:
| Year | Withdrawal | Balance at year-end |
|---|---|---|
| 1 | $60,000 | $1,515,000 |
| 5 | $64,946 | $1,570,021 |
| 10 | $71,706 | $1,623,542 |
| 20 | $87,409 | $1,645,246 |
| 30 | $106,551 | $1,461,752 |
After 30 years the balance stands at $1,461,752 — the plan ends with more than it started. But notice the assumption doing the heavy lifting: 5% net returns every single year. Set returns one band lower in the withdrawal calculator and watch how the table changes. That gap between bands is your sequence-risk premium, and it's why honest calculators show ranges instead of single numbers.
The one-question shortcut
If you only remember one thing: your number is your spending divided by your withdrawal rate, minus guaranteed income. Everything else — income replacement ratios, million-dollar myths, "you'll need 12 times salary" — is decoration on that single division. Try it with your own spending in the retirement calculator right now.