How Much Money Do You Need to Retire?

Key takeaways

• Your retirement number should be created from your own expected spending and guaranteed income, not a national survey average like the $1.46 million figure often cited in the media⁽¹⁾
• Subtract Social Security and any pension income from your target spending first, then apply a safe withdrawal rate of 3.9% to 4% to the remaining difference to find your savings target⁽⁵⁾
• Calculate a separate healthcare reserve using Fidelity's current estimate of $172,500 for an individual or $345,000 for a couple, since this cost is easy to underestimate and does not scale like other expenses⁽⁶⁾
• Perform the calculation more than one way, comparing an expense-based target against Fidelity's income-based 10x guideline, to see a realistic range rather than a single misleading figure⁽⁴⁾
• Revisit the calculation every few years, since your income, health, and market conditions will all shift the target over time

You have probably seen a number floated somewhere, a single dollar figure that gets repeated as “what you need to retire.” It might have come from a survey, a headline, or a conversation with a coworker who read the same headline. And you probably had the same reaction most people do. That number does not account for anything about your actual life.

It shouldn't. A retirement number that reflects a national average does not always accurately reflect your mortgage, your health, your Social Security timing, or how you actually want to spend your time once you stop working. The good news is that the real calculation is not complicated. It is five steps, and you can walk through all of them with numbers you already have.

The five steps are estimating your annual retirement spending, subtracting the guaranteed income you will already have coming in, applying a safe withdrawal rate to whatever difference remains, sanity checking that result against an income-based guideline, and layering on a separate healthcare estimate. None of these require specialized software or a finance degree.

They require your own income, your own Social Security estimate, and about twenty minutes. Let’s dive in.

Why a national average may not be your number

If you have read anything about retirement planning recently, you have likely come across Northwestern Mutual's “magic number,” the amount Americans believe they need to retire comfortably. For 2026, that figure is $1.46 million, up from $1.26 million the year before⁽¹⁾.

It moved up by $200,000 in a single year, which tells you something important. This is a sentiment survey, shaped by inflation expectations and market mood, not a personalized calculation.

Northwestern Mutual's own guidance points toward something more useful than the headline number. The firm generally recommends replacing around 80% of your pre-retirement income once you stop working⁽¹⁾. That is a starting assumption, not a fixed target, but it is a far better anchor than an average pulled from thousands of unrelated households.

The real number is the one created from your own expected spending, your own guaranteed income, and your own timeline. That is what the rest of this guide walks through.

Start with what retirement will actually cost you, not what you earn now

The most common mistake in this calculation happens at step one, before any math is even involved. People start with their current income and try to replace most of it. What you actually need to replace is your expected retirement spending, and those two numbers are rarely the same.

Some expenses disappear entirely. If your mortgage is paid off by the time you retire, that payment is gone. You are no longer contributing 10% or 15% of your paycheck to a 401(k), but that portion of your income was never ‘spending’ in the first place. Payroll taxes for Social Security and Medicare also stop showing up on a paycheck you no longer receive.

However, other expenses grow. Healthcare costs typically rise as you age, even with Medicare coverage. Travel and leisure spending often increases in the early years of retirement, when health and energy are still strong. If your adult children or grandchildren factor into your plans, that can shift the number too.

This is why the commonly cited 70% to 80% income replacement range exists, and why Northwestern Mutual lands on 80% as a general guideline⁽¹⁾. Start there, then adjust up or down based on what you know about your own situation. A household planning to downsize and travel less might land closer to 65%. A household planning an active retirement with significant travel might land above 80%.

Subtract what Social Security and any pension will already cover

Once you have an estimated annual spending target, the next step is figuring out how much of it is already covered by income you do not have to save for. For many people, that starts with Social Security.

The Social Security Administration's 2026 cost of living adjustment fact sheet puts the average monthly benefit for all retired workers at $2,071 after the 2.8% increase, up from $2,015 before it, which works out to roughly $24,850 a year⁽²⁾.

That is the average, but your own benefit depends on your earnings history and the age at which you claim.

It is worth understanding how much of your income Social Security is actually designed to replace, because it is far less than most people assume. For a worker with career average earnings retiring at full retirement age, Social Security's own actuarial research puts the replacement rate at about 41% of wage-indexed career average earnings⁽³⁾. That means the benefit was designed to cover less than half of what an average earner made during their working years, with the rest expected to come from personal savings and any employer pension.

If you have a pension, add its expected annual payout here as well. Whatever remains after subtracting Social Security and any pension from your target spending is what we will call your income gap, the amount your own savings need to generate every year.

Turn your income gap into a savings target

This is a step many people skip entirely, even though it is the one that turns an abstract spending goal into an actual number you can save toward.

The starting point is what is commonly known as the 4% rule. It comes from research published by financial planner Bill Bengen in 1994, which examined historical market returns to determine a withdrawal rate a retiree could sustain over a 30-year retirement without running out of money⁽⁵⁾.

The 4% figure has held up reasonably well as a rule of thumb, but it was never meant to be permanent.

Morningstar publishes updated safe withdrawal rate research every year based on forward-looking assumptions for stock and bond returns, rather than relying solely on historical data. For 2026, Morningstar's research points to a safe starting withdrawal rate of 3.9%, up slightly from 3.7% the year before⁽⁵⁾. That figure assumes a 30-year retirement horizon, a portfolio with 30% to 50% invested in stocks, and a 90% probability that the money lasts the full 30 years⁽⁵⁾.

The difference between 4% and 3.9% might look small, but it changes your savings target. Dividing your income gap by 4% gives you 25 times that number. Dividing by 3.9% gives you closer to 25.6 times. Neither number is the “correct” one. They represent a range, and where you land within that range depends on how conservative you want to be and how flexible you can be with spending if markets underperform in your first few retirement years.

One more thing worth knowing here. A starting withdrawal rate is exactly that, a starting point for year one. Retirees who are willing to adjust their spending based on how markets perform, rather than taking a fixed inflation-adjusted amount every year regardless of conditions, can often support noticeably higher withdrawal rates over time. Learn more about sequence of returns here.

Putting the calculation together

Here is how the five steps look with actual numbers. Consider a household currently earning $95,000 a year combined, planning to retire at 67.

Their target replacement rate is 75% of current income, landing on an estimated retirement spending need of $71,250 a year. Based on their combined earnings history, they expect a combined Social Security benefit of about $42,000 a year once both spouses claim at full retirement age. That leaves an income difference of $29,250 a year that savings alone need to cover.

Applying the 4% rule, their target nest egg is $29,250 divided by 0.04, which comes to $731,250. Applying Morningstar's 2026 rate of 3.9%, the target rises to about $750,000. That is the range this household is working toward, roughly $731,000 to $750,000, not counting a separate healthcare reserve, which the next section covers.

As a sanity check, Fidelity's income-based framework suggests saving 10 times your final income by age 67 for someone planning to maintain their current lifestyle⁽⁴⁾. For this household's combined $95,000 income, that would suggest a target closer to $950,000. The expense-based method assumes some income replacement from Social Security and a 75% spending target rather than 100%, while Fidelity's multiple is designed around fully replacing income at a higher assumed savings behavior throughout a career. Both are legitimate starting points, and understanding both gives you a wider, more honest picture than trusting either one alone.

Why healthcare costs deserve their own line item

Everything calculated so far covers general living expenses. Healthcare needs its own separate estimate, because it is one of the most commonly underestimated costs in retirement, and it does not scale the way other expenses do.

Fidelity's 2025 Retiree Health Care Cost Estimate puts the lifetime healthcare cost for a single 65-year-old retiring today at $172,500, and $345,000 for a couple, both figures after tax⁽⁶⁾. That covers Medicare Part B and Part D premiums, deductibles, coinsurance, and other out-of-pocket costs for a person enrolled in Original Medicare. It does not include dental care, vision care, over-the-counter medications, or long-term care⁽⁶⁾.

This figure is not meant to replace your annual spending estimate from earlier. It is layered on top of it, because healthcare costs in retirement tend to rise faster than general inflation and are easy to underestimate if you are basing your projection on what you currently spend on healthcare while covered by an employer plan.

There is also a timing dimension worth noting. These figures represent an estimated lifetime total starting at age 65, spread across a retirement that could last twenty years or more. They are not a single upfront bill. Building a dedicated healthcare line item into your annual withdrawal plan, rather than treating it as one lump sum sitting off to the side, makes it easier to see how it interacts with the rest of your spending each year.

Long-term care is a separate and larger risk that Fidelity's estimate explicitly excludes⁽⁶⁾. If extended nursing care or in-home care becomes necessary, the cost can run well beyond the healthcare figure above, which is a strong reason to think through long-term care coverage separately rather than assuming it is baked into a general retirement number. Read the financial checklist every adult should have in 2026 here.

Common mistakes in the calculation

Using current income instead of expected retirement spending

Replacing 80% of a working income that includes a mortgage payment, retirement contributions, and payroll taxes overstates what you will actually need, sometimes significantly. Build your estimate from expected spending, not current income, and use income replacement percentages as a rough check rather than the primary method.

Treating Social Security as a rounding error instead of a real income source

Some people build their entire retirement number as if Social Security will not be there, then end up oversaving in a way that delays retirement unnecessarily, or undersaving because they never accounted for it clearly in either direction. Social Security replaces a real, calculable portion of income for most earners⁽⁵⁾. Include it deliberately in the calculation rather than ignoring it or assuming it covers more than it does.

Forgetting that the safe withdrawal rate is a starting point, not a permanent fixed number

The 4% rule and Morningstar's updated 3.9% figure are both starting points for year one of a 30-year retirement, based on a specific set of assumptions about market returns and spending flexibility⁽⁵⁾. Treating either number as a rule that never changes, rather than a framework to revisit as markets, health, and spending needs shift, is where the calculation stops reflecting reality.

Where to start

The five-step method above gives you a working range for your own retirement number, but it is still an estimate built on averages and assumptions about your future. A financial professional can help you stress-test that range against your specific tax situation, investment mix, and family circumstances.

If you’re looking for an advisor, you can answer a few questions below to get started:

About the Author

The Greensprout editorial team researches and writes on financial topics that matter most to adults planning for retirement, drawing on data from federal agencies, major financial institutions, and independent research firms.

Disclaimer

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