A common shorthand: 25× your annual spending = the portfolio needed to live off 4%. Spend $40k a year, aim for roughly $1M invested.
Your retirement number
The 4% rule (from the Trinity Study) suggests you can withdraw 4% of a diversified portfolio in year one of retirement, adjust for inflation each year, and have a high chance of the money lasting 30 years. The inverse gives you a savings target: 25× annual spending.
Adjust down (aim closer to 3.5%) for very early retirements or if you want a bigger safety margin. Adjust up if you have significant pension or Social Security income covering base expenses.
How are you tracking?
- By 30: aim for 1× your annual salary invested.
- By 40: aim for 3× your annual salary.
- By 50: aim for 6× your annual salary.
- By 60: aim for 8–10× your annual salary.
Which accounts to prioritise
- Employer 401(k) up to the match — free money, no exceptions.
- Health Savings Account (HSA) if eligible — triple tax advantage.
- Roth IRA or Traditional IRA (up to annual limits).
- 401(k) beyond the match, up to the annual limit.
- Taxable brokerage account for anything extra.
Closing the gap
Three levers: save more, invest longer, or accept a lower target. For most people the highest-impact lever is saving rate, especially in the early and middle career years.
Automate contribution increases each January. Send half of every raise to retirement before the new pay hits your account. Small consistent increases quietly close big gaps.
Later in life adjustments
Within 5–10 years of retirement, focus shifts from accumulation to protection. Reduce stock allocation gradually, build a cash cushion covering 1–2 years of retirement spending (to avoid selling in a downturn), and start modelling actual withdrawal strategies.
Frequently asked questions
How much do I need to retire?
A common rule is 25× your expected annual retirement spending, invested in a diversified portfolio. Personal factors — Social Security, pensions, longevity, lifestyle — shift the number up or down.
Is the 4% rule still valid?
It's a reasonable starting point. Some researchers argue 3.3–3.5% is safer for very long retirements or with low starting yields; others show 4% has held up well historically.
When should I start saving for retirement?
Ideally with your first paycheque. A modest amount invested in your 20s can outgrow a much larger amount started in your 40s because of compounding.
Should I use a Roth or Traditional retirement account?
Roth is generally better if you expect higher tax rates in retirement than today (common early in a career). Traditional is generally better if you expect lower rates in retirement.
Put this into practice
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