How Much Money Do I Need to Retire?

The four numbers that answer this question

Fidelity Investments' Retirement Mindset Study found that only 18% of Americans have a full written retirement plan. Most people are guessing at a number instead of calculating one, which is exactly how you end up either saving too little or working two extra years you did not need to.

Getting your real number takes four inputs:

1. The age you want to stop working.
2. What your essential living expenses will cost once you retire.
3. The income you can count on for life, from Social Security, a pension, or an annuity.
4. A withdrawal approach for the rest of your savings that has a strong chance of lasting.

Work through those four in order and a specific dollar figure falls out the other end, instead of a number you picked because it sounded big enough.

Estimate your retirement living expenses

Start by splitting your spending into two buckets. The first bucket covers what you cannot easily live without: housing, groceries, insurance and anything else you consider non-negotiable. The second bucket is discretionary spending, the travel, dining out and hobbies you enjoy but could scale back if you needed to.

This split matters because it tells you which expenses need to be covered by guaranteed income and which ones can ride on a flexible investment withdrawal. Build a simple worksheet with both categories filled in using your real numbers rather than a national average, since your zip code and health situation move these figures more than any generic estimate would.

Total your guaranteed lifetime income

Next, list every income source that keeps paying no matter how long you or a spouse live. For most households that means Social Security, and possibly a pension or income from an existing annuity.

The Social Security Administration's online benefit estimator will give you a solid projection of your own future check based on your earnings record. Once you have that figure alongside any pension or annuity income, add it up. That total is your guaranteed income line, and it is the number the rest of this math depends on.

Calculate the gap and what it takes to fill it

With expenses on one side and guaranteed income on the other, subtract the smaller from the larger. If guaranteed income falls short of essential expenses, that difference is your income gap, and it is the number a savings target or an annuity purchase needs to close. For a full walkthrough of this arithmetic with real household numbers, see our income gap analysis guide.

The 4% withdrawal rule

The 4% rule is a rough guideline for how much a retiree can pull from an investment portfolio each year without a high risk of running out of money. It is built on decades of historical stock and bond return data dating back to 1926, and it has been debated ever since, particularly because a chunk of a 4% withdrawal typically comes from interest and dividends rather than pure growth.

Many retirement researchers today lean toward a more conservative 3.5% as a safer starting point. Using the traditional 4% figure, closing a $40,000 annual income gap would call for about $1,000,000 in savings. A smaller $20,000 gap would call for roughly $500,000. Whichever percentage you use, the math is the same: divide your annual gap by your chosen withdrawal rate to get a savings target.

Filling the gap with an annuity instead

An annuity is the one financial product built specifically to guarantee income for as long as you live, which makes it a natural tool for closing the gap identified above rather than relying purely on portfolio withdrawals. Many people who work through this exercise end up with two different gap figures: one against total spending, and a smaller one against just their essential expenses.

A common approach is to size an annuity to cover the essential expense gap specifically, since discretionary spending can flex with market withdrawals but rent and groceries cannot. As a hypothetical example, a single premium immediate annuity purchased around age 65 might convert a lump sum into a monthly check in the ballpark of 5% to 6% of that lump sum per year, guaranteed for life. Because real payout rates change with age, interest rates and the insurer you choose, compare current numbers for your own age and state rather than budgeting off of a rounded example.