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
Three variables drive most of the movement in your retirement target:
- Annual spending — every $1,000/month less in spending removes $300,000 from your required portfolio using the 25x formula.
- Withdrawal rate — 4% requires a 25x portfolio; 3.5% requires 28.5x; 5% requires only 20x but carries more depletion risk over long horizons.
- Retirement length — the 4% rule was calibrated for 30 years. Retiring at 40 with a 50-year horizon suggests targeting 3.5% or lower.
Housing, transportation, and food are typically the largest spending categories, which is why FIRE planners pay close attention to cost of living and city choice.
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. A thorough stress test includes:
- Run scenarios at 6%, 7%, and 8% market returns to see how sensitive your date is to performance.
- Use Monte Carlo simulation: a 90%+ success rate across thousands of scenarios is a reasonable minimum target.
- Test with 10–15% reduced spending to measure how much flexibility protects the plan.
- Model part-time income in early years to understand how it reduces portfolio pressure.
- Account for healthcare costs — a significant wildcard for early retirees before Medicare eligibility.