Income Planning · 8 min read
How Much Do You Need to Retire? The ×25 Estimate, Built From the Right Input
A first estimate of how much you need to retire is 25 times the annual spending your portfolio must cover: total spending minus Social Security, pensions and other steady income. That is the inverse of a 4 percent first-year withdrawal. Current research puts the multiplier between ×21.3 and ×25.6.
“How much do we need?” is usually asked as if the answer were a single figure that applies to everyone, often a round number with a million in it. We start somewhere more specific: the household’s own spending, less the income that will arrive without drawing on savings. A long-standing shortcut turns that gap into a portfolio target in one multiplication. It is a useful first estimate, and it is worth knowing exactly what it assumes before relying on it.
What follows is educational and uses hypothetical figures. It is not a recommendation for any household.
What the Question Is Really Asking
A retirement “number” bundles three separate estimates, and each can be wrong on its own:
- Spending. What will the household actually spend each year, in today’s dollars, including taxes and health care?
- Other income. How much of that spending will Social Security, a pension, rental income or an annuity cover, and starting when?
- Sustainability. How large must a portfolio be to fund the remainder, adjusted for inflation, across a long and uncertain retirement?
The multiplier answers only the third. The first two decide what it is applied to, and in our experience they move the result far more than the choice of multiplier does.
Where the Multiplier Comes From
A multiplier is a withdrawal rate turned upside down. If a portfolio can support a first-year withdrawal of 4 percent of its starting value, with that dollar amount raised for inflation each year after, then the portfolio needed is the withdrawal divided by 0.04. Dividing by 0.04 is the same as multiplying by 25.
The 4 percent figure traces to William Bengen’s 1994 study, which tested withdrawals against U.S. market history back to 1926 and found that a 4 percent start lasted through every 30-year period examined; he later called that worst-case rate “SAFEMAX.” The Trinity Study, published in 1998 by three Trinity University finance professors, reached similar conclusions across 200 combinations of portfolio mixes and payout rates. (Bengen, Journal of Financial Planning, 1994; Cooley, Hubbard & Walz, AAII Journal, 1998)
Later research has moved the rate in both directions, and the multiplier moves with it:
| Starting withdrawal rate | Where it comes from | Multiplier (1 ÷ rate) |
|---|---|---|
| 3.9% | Morningstar, for 2026 retirees: 90% probability of lasting 30 years, forward-looking returns | ×25.6 |
| 4.0% | The original Bengen and Trinity line of research | ×25 |
| 4.7% | Bengen’s 2025 update, with a broader mix of asset classes | ×21.3 |
(Morningstar, December 2025; Advisor Perspectives, August 2025)
The rows are not identical portfolios. Bengen’s 4.7 percent assumes a more diversified mix than his original 50/50 stock-and-bond model, so the table brackets a reasonable range rather than ranking three versions of one test. Our guide to whether the 4% rule still holds compares the two research methods in detail.
Portfolio target ≈ (annual spending − Social Security − pension and other steady income) × 25, with ×21.3 and ×25.6 as the current research bookends.
The Input That Matters Most
The multiplier applies to one number: the spending the portfolio itself has to fund. That is neither income before retirement nor total spending in retirement. It is annual spending minus Social Security, minus any pension, minus rental or other durable income.
Consider a household spending $80,000 a year with $40,000 of combined Social Security:
- Spending the portfolio must cover: $80,000 − $40,000 = $40,000
- At ×25: $40,000 × 25 = $1,000,000
- At ×25.6: $1,024,000. At ×21.3: $852,000
Multiplying the full $80,000 instead gives $2,000,000, double the correct figure. Skipping the subtraction is the most common way this estimate goes wrong.
For a sense of scale, SSA estimates the average retired-worker benefit at $2,071 a month in January 2026, after the 2.8 percent cost-of-living adjustment, or about $24,852 a year. (SSA, 2026 COLA fact sheet) Every dollar of dependable income subtracted from spending removes 25 dollars from the portfolio target, which is why the claiming decision covered in our Social Security claiming guide bears so directly on the number.
A Hypothetical Household, Worked Through
This illustration is hypothetical and simplified. It is not based on any client, uses today’s dollars, ignores investment returns during the bridge years, and is not a recommendation.
A married couple plans to stop working when both are 62. They expect to spend $96,000 a year after taxes. If both delay Social Security to 67, their combined benefits are projected at $44,000 a year. They have no pension. Their savings are mostly in pre-tax 401(k) and IRA accounts.
| Step | Arithmetic | Result |
|---|---|---|
| 1. Spending the portfolio covers from 67 | $96,000 − $44,000 | $52,000 a year |
| 2. Gross up for income tax (assumed 15% average rate on withdrawals) | $52,000 ÷ 0.85 | $61,176 a year |
| 3. Apply the multiplier | $61,176 × 25 | $1,529,400 |
| 4. Add the bridge from 62 to 67, when Social Security has not started | 5 years × $44,000 ÷ 0.85 | $258,824 |
| First-pass target | Step 3 + Step 4 | about $1,788,000 |
Two lines in that table are usually missing from a quick estimate. The tax gross-up adds about $229,400, because a pre-tax dollar withdrawn is not a dollar spent. The bridge adds about $258,800, because the portfolio carries the full $96,000 until benefits begin. Without them, the same couple would have estimated $52,000 × 25 = $1,300,000.
The multiplier range changes step 3 by a smaller amount: at ×25.6 it is about $1,566,100, and at ×21.3 about $1,303,000. The inputs moved this couple’s target by nearly $490,000; the choice of research house moved it by about $263,000 across the whole range.
$1.3 million from the shortcut alone; about $1.79 million once taxes and the Social Security bridge are counted. The gap comes from inputs, not from the multiplier.
Where the Estimate Bends
- Horizon. The research standard is 30 years. Retiring at 55 can mean planning for 35 to 40, which argues for the conservative end of the range.
- Spending shape. The rule assumes spending that rises only with inflation. Many retirements spend more early and less later, and the research gives real credit for flexibility.
- Account mix. A million dollars in a pre-tax 401(k) and a million in a Roth IRA do not fund the same spending. The gross-up in step 2 is an average; the actual cost depends on which account funds each year.
- Timing of returns. Two retirements with the same average return can end far apart if one meets its losses first. The multiplier bakes in historical or modeled bad luck but cannot see the actual sequence ahead.
How We Approach This in a Plan
We use the multiplier as an orientation point in a first conversation and then replace it with a year-by-year income plan, because each of its assumptions connects to a decision the household still controls.
- Withdrawal rate and structure. We test the starting rate alongside a cash reserve and spending guardrails, the approach laid out in retirement income and withdrawal rates.
- Social Security timing. Delaying raises the income subtracted in step 1 but lengthens the bridge in step 4. We model both sides together; the arithmetic of an early claim is in claiming Social Security at 62.
- Taxes and account order. The 15 percent assumption above becomes a specific plan for which account funds each year, covered in withdrawal sequencing. Bridge-year withdrawals can also shape later Medicare premiums and required distributions.
- Health care. Premiums belong in the spending line from the first year. Medicare begins at 65, and its costs are detailed in Medicare Part B costs in 2026.
How Households Compare
For context, the Federal Reserve’s 2022 Survey of Consumer Finances found that 57 percent of households headed by someone aged 55 to 64 held a retirement account, with a median balance of $185,000 among those that did; the other 43 percent held none. (Congressional Research Service, R48143, July 2024) Those figures leave out pensions, Social Security, home equity and taxable savings, so they do not measure readiness on their own. They are a reminder that a household’s own arithmetic says more than a national median.
Questions Worth Answering Before You Decide
- What does the household spend today, and which expenses will end, shrink or begin in retirement?
- What will Social Security pay at each spouse’s intended claiming age, according to each SSA statement?
- Is there a gap between the retirement date and the first benefit check, and how many years does it last?
- How much of the savings is pre-tax, Roth and taxable, and what average tax rate is realistic on withdrawals?
- How long a horizon should the plan cover, given ages and family health history?
- Which spending could flex after a weak market year, and by how much?
What This Does Not Mean
- It does not mean the number is a plan. A multiplier cannot see the tax mix, the claiming strategy, a paid-off house or what the household would change in a downturn.
- It does not mean falling short rules out retiring. Households below the line adjust timing, spending or claiming; households above it can still run into trouble with poor structure.
- It does not mean the research figures are promises. A 90 percent success rate leaves about one modeled path in ten that runs short, and history bounds the past, not the future.
- It is not personalized advice. A specific target should come from a full plan reviewed with a qualified professional.
Frequently Asked Questions
Q: What is the multiply-by-25 rule for retirement?
A first estimate of the portfolio needed: multiply the annual spending your portfolio must cover by 25. It is the inverse of a 4 percent first-year withdrawal, the rate from Bengen’s 1994 research and the 1998 Trinity Study.
Q: Should I multiply my income or my spending by 25?
Neither directly. Multiply spending minus Social Security, pensions and other steady income. A household spending $80,000 with $40,000 of Social Security needs about $1,000,000 by this measure, not $2,000,000.
Q: Is 25 still the right multiplier in 2026?
It sits inside the current range. Morningstar’s 3.9 percent starting rate for 2026 retirees implies ×25.6, and Bengen’s 2025 update of 4.7 percent implies ×21.3.
Q: Does the ×25 estimate include taxes?
No. It treats pre-tax and Roth dollars the same. If withdrawals come mostly from pre-tax accounts, divide the spending gap by one minus the expected average tax rate before multiplying.
Q: What if I retire before Social Security starts?
The portfolio carries the full spending load until benefits begin. Add those bridge years separately: in our hypothetical, five years of $44,000 in delayed benefits added about $258,800 to the target after taxes.
Q: How much do households aged 55 to 64 have saved?
In the Federal Reserve’s 2022 survey, 57 percent held a retirement account, with a median balance of $185,000 among them; 43 percent held none. Pensions, Social Security and home equity are not included.
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The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.
General educational information, current as of 2026. Figures and rules change. For guidance specific to your situation, speak with a qualified professional.