Most retirees need 70 to 85 percent of their pre-retirement income to maintain their lifestyle, but the right number depends on three things most calculators ignore: actual spending patterns by year, guaranteed income sources, and lifetime tax exposure. A common rule of thumb is to save 25 times your expected annual portfolio withdrawals. For a household needing $80,000 per year from their portfolio, that’s $2 Million. The real number depends on your specific income gap after Social Security and any pension, which is why a year by year retirement income plan, rather than a single target number, produces the most reliable answer.
Key Takeaways
- The 80 percent rule is outdated for most retirees today. Healthcare costs, longer lifespans, and higher taxes have changed the math.
- Maximum 2026 Social Security at full retirement age is $4,152 per month, or about $49,824 per year, per the Social Security Administration.
- Fidelity estimates a 65 year old retiring today will spend $172,500 on healthcare in retirement, not including long-term care.
- A 30 year retirement is now the planning baseline. One spouse in a couple retiring at 65 has roughly a 50 percent chance of living past 90.
- The right retirement number is the one that funds your spending, after taxes, for 30 plus years.
Why is the 80 percent rule wrong for most retirees today?
The 80 percent rule says you need 80 percent of pre-retirement income to maintain your lifestyle. The rule came from a time when most retirees had pensions, lower healthcare costs, and shorter retirements.
For someone retiring today, three things have changed:
- Healthcare costs run higher. Fidelity’s most recent estimate puts retirement healthcare at $172,500 per 65 year old, not including long-term care or Medicare premiums.
- Taxes do not retire when you do. Required minimum distributions, Social Security taxation, and IRMAA Medicare surcharges all kick in at different ages.
- Retirements are longer. Planning for 30 years of retirement is now standard.
What is the 25x rule for retirement?
The 25x rule says you need to save 25 times your expected annual portfolio withdrawals. This rule is the inverse of the 4 percent rule. Withdrawing 4 percent of $1 Million produces $40,000. To produce $40,000 of withdrawals, you need $1 Million saved.
The rule works well as a starting framework. It does not account for taxes, Social Security, or sequence of returns risk.
Even with a clear number, the next question is whether your current resources can actually produce that income year after year.
How much does the average retiree actually need?
There is no single right number. Spending varies widely by lifestyle, location, and health.
|
Annual spending |
Portfolio needed at 4% withdrawal |
Portfolio needed at 3.5% withdrawal |
|---|---|---|
|
$60,000 |
$1.5 Million |
$1.7 Million |
|
$100,000 |
$2.5 Million |
$2.9 Million |
|
$150,000 |
$3.75 Million |
$4.3 Million |
|
$200,000 |
$5 Million |
$5.7 Million |
These numbers assume the portfolio funds 100 percent of spending. In practice, Social Security and any pension reduce the portfolio requirement substantially.
How does Social Security affect the number?
According to the Social Security Administration, maximum 2026 Social Security benefits are:
- $2,969 per month at age 62
- $4,152 per month at full retirement age (67 for those born 1960+)
- $5,181 per month at age 70
A couple where both spouses receive maximum Social Security at full retirement age has guaranteed income of roughly $100,000 per year. That guaranteed income reduces what the portfolio has to cover.
What is the right way to calculate your retirement number?
Three steps.
- List expected annual spending in retirement. Break it into essentials and lifestyle.
- Subtract guaranteed income from Social Security and any pension.
- The remaining gap is what the portfolio must fund. Multiply by 25 for a starting estimate.
Example. A couple expects to spend $120,000 per year. They expect $48,000 per year combined from Social Security. The gap is $72,000. Their portfolio target, before tax considerations, is roughly $1.8 Million ($72,000 x 25).
After accounting for taxes on tax-deferred withdrawals, the practical portfolio target is closer to $2 Million to $2.5 Million.
What do most retirees underestimate?
Three things, consistently.
- Healthcare costs. The Fidelity estimate of $172,500 surprises most retirees the first time they see it.
- Longevity. Planning for retirement to end at age 85 is no longer realistic for most healthy retirees.
- Tax exposure. The combination of RMDs, Social Security taxation, and IRMAA creates effective tax rates many retirees don’t model.
Common Mistakes
- Using a single average spending number instead of modeling year-by-year
- Ignoring inflation in long-term projections
- Forgetting that taxes on traditional IRA withdrawals reduce the after-tax purchasing power of the portfolio
- Underestimating healthcare costs in late retirement
- Failing to plan for the surviving spouse, who often pays higher tax rates on similar income.
Frequently Asked Questions
Can I retire on $1 Million?
Yes, it is possible, depending on spending. Combined with Social Security, $1 Million may be able to support roughly $80,000 to $90,000 per year of total income for most couples.However, the best approach we’ve found is a year by year income plan that lays out your spending, your tax buckets, and the healthcare bridge to Medicare.
Is $2 Million enough to retire at 60?
For many households, yes, if spending stays around $100,000 to $120,000 per year and includes a strategy to bridge healthcare costs before Medicare. Again, a year by year retirement income plan is the best way to test your specific situation.
How much should I have saved at 60?
A common benchmark is 8x annual income by age 60. For someone earning $150,000, that’s $1.2 Million.
Does Social Security replace 40 percent of income?
For middle income earners, yes, when claimed at the right age. For higher earners, Social Security typically replaces a smaller percentage, often 20 to 30 percent.
Ready to take action?
Speak to the team: → https://creativefinancialgrp.com/cfg-start-here/
Sources
- Social Security Administration – 2026 benefit amounts
- IRS – retirement plan rules
- Centers for Medicare and Medicaid Services – Medicare costs
About the Author
Kurt Supe is a CPA and Senior Partner at Creative Financial Group, an Indianapolis-based retirement planning firm. CFG has worked with retirees and pre-retirees for nearly 30 years, managing over 600M dollars in assets across 1,500 households. Kurt contributes to MarketWatch on retirement and tax planning topics.
This is not financial advice. Consult a qualified professional before making any financial decisions. Scenarios are hypothetical and for illustrative purposes only.