The short answer: 25× your annual spending
The most widely used formula for a retirement savings target is multiplying your expected annual spending by 25. This comes from the 4% safe withdrawal rule: if your portfolio is 25 times your yearly expenses, withdrawing 4% per year should keep your portfolio intact — inflation-adjusted — for at least 30 years.
If you plan to spend $60,000 per year in retirement, your target is $1,500,000. If you plan to spend $40,000, the target is $1,000,000. The number is sensitive to spending, not income — which is why reducing expenses has a compounding effect on your FIRE timeline.
What variables actually move your retirement number
Annual spending is the biggest driver. Every $1,000 you reduce from your monthly expenses removes $300,000 from your required portfolio (using the 25x formula). Housing, transportation, and food are typically the largest categories, which is why FIRE planners pay close attention to cost of living.
Withdrawal rate is the second major lever. A 4% withdrawal rate requires a 25x portfolio. A more conservative 3.5% withdrawal rate requires a 28.5x portfolio. A more aggressive 5% rate requires only a 20x portfolio but carries significantly more depletion risk over longer time horizons.
Retirement length matters too. The 4% rule was calibrated for a 30-year retirement. If you retire at 40 and expect to live to 90, you need a 50-year runway. Monte Carlo simulations across different historical market periods suggest a slightly lower withdrawal rate — around 3.5% — is safer for very long retirements.
The role of Social Security and other income
Social Security, rental income, or part-time work all reduce the portfolio you need. If you expect $1,500 per month in Social Security starting at 67, your portfolio only needs to cover the gap between your spending and that income — not your full spending target. A household spending $60,000 per year with $18,000 in expected Social Security income only needs a portfolio to cover $42,000 annually, reducing the target from $1,500,000 to around $1,050,000.
Inflation and tax drag
Many retirement estimates underestimate taxes. Traditional 401(k) and IRA withdrawals are taxed as ordinary income. Capital gains taxes apply to taxable brokerage accounts. A realistic plan accounts for an effective tax rate on withdrawals of 10–20%, depending on your income bracket and state. This means your gross withdrawal target should be higher than your net spending target.
Inflation — historically around 2–3% annually — erodes purchasing power over a 30-50 year retirement. Most sound FIRE projections assume nominal returns of 7% and subtract 3% for inflation to arrive at a real return of around 4%, which aligns with the 4% withdrawal rule.
How to stress-test your number
A single-point estimate is not enough. Monte Carlo simulation runs thousands of possible market scenarios against your retirement plan and tells you what percentage of outcomes end with money remaining. A 90% success rate is a reasonable minimum target. Running scenarios with reduced returns, higher spending, or early retirement dates gives you a clearer sense of where your margin of safety really is.