What do you picture when you hear the word “retirement?” Is it kicking back on a beach in a foreign country with your spouse? Or would you rather live near your kids and play real-life quidditch in your free time? Whatever your dream for retirement is, you need to save serious money if you want to quit your day job. But how much will you need? It’s easier to save if you have a target.

This step-by-step guide will help you calculate your retirement number. That will help you figure out whether you’re on track to retire or need to make some changes.

What is a “Retirement Number?”

Your retirement number is the amount you need to safely pull the plug on your job. It’s easiest to calculate as a function of your spending, using the 4% rule.

The 4% rule is a common benchmark for financial independence in retirement. It states that a balanced investment portfolio can support annual withdrawals of 4% or less indefinitely, in most cases. In simple terms, that means that you can stop working once you save up 25 times your annual retirement expenses.

👉 For example: If you spend $40,000 a year, your retirement number is $1,000,000.

That’s a simple formula, but you still need to figure out how much you’ll spend in retirement. When you know that, you can easily calculate your retirement number.

📘 Read more: You may be able to retire years ahead of the typical retirement age. Take a look at our guide to early retirement to learn more about how this works: How to Retire Early.

How to Calculate Your Retirement Number

Your retirement number is a function of your spending, but your expenses are not always predictable. If you calculate your retirement number based on your spending in your twenties, it’s probably going to be a very different result than the one you’d get in your forties.

The spending that matters most is going to be what you spend during retirement. It’s impossible to know that amount for sure. There’s always going to be some amount of educated guesswork involved, so keep that in mind as we go. Remember what Dwight Eisenhower (allegedly) said: “Plans are nothing; planning is everything.” Let’s get to planning.

1. Start By Tracking Your Current Spending

Your spending in retirement might not be identical to what you’re spending today, but it’s the best place to start. Don’t try to calculate your retirement number by conjuring it out of thin air. Take advantage of the data you have in front of you.

Once you know what you need to support your current lifestyle, you can add or subtract what you think the differences will be in retirement. One of the best ways to track your spending is to link your accounts to an app like Mint and avoid cash payments for a while. In just a couple of months, you’ll have a good baseline of your spending habits. If you already have a budget that you stick to, you can skip this step.

📘 Learn More: Budgets make retirement planning infinitely easier. They’re also the best tool for making sure you hit your short-term financial goals. If you need help constructing one, take a look at our favorite methods: Budgeting Methods: Which One is Best for YOU?.

2. Add or Subtract For Your Retirement Goals

Once you have a solid grasp of your current spending habits, you’re going to need to estimate how that spending will shift in the years to come. The good news is that, on average, people tend to spend less in retirement than they do while they’re working.  

The bad news is that you can’t rely on being the average. You need to figure out what you want your retirement to look like. Then you can estimate what adjustments you’ll make to your spending levels in retirement.

Here are the most important categories to keep in mind.


Again, retirement means vastly different things to different people. The variation in lifestyle expectations plays a huge role in your future spending. You need to remember that when you calculate your retirement number.

I’m a naturally low spender. I’ve been walking around in the same pair of Nikes for almost five years now (no shame). My hobbies are pretty cheap (mostly books and exercise), and I genuinely like eating at home (you should try my homemade empanadas).

I’m lucky enough to enjoy my low-cost lifestyle, so I don’t expect it to change all that much in retirement. But if you don’t like your lifestyle now and are delaying gratification until you retire, you might find yourself with significantly higher expenses when you have all that free time. Try to assign realistic numbers to any changes you think you’ll want to make.

👉 For example, if you want to:

  • Eat out more: Throw in an extra $200 a month into your budget for restaurant visits.
  • Travel more: Add in another $1,500 to your annual travel budget for a summer getaway.

Imagining a luxurious retirement can be exciting, but try not to get too carried away. Every extra $100 you plan to spend per month in retirement is another $30,000 you need to add to your investment portfolio according to the 4% rule.

Remember that retirement will take away some expenses but can add to others. You won’t need an office wardrobe and you won’t face commuting expenses, but spending more time at home can bump up your utility bills.

Leaving work can also save you a lot on housing. Your home equity can be an important retirement resource, especially if you have paid off all or most of your mortgage. Housing near work centers is usually quite valuable. Once you’re no longer working you’re no longer tied to a certain area or forced to live in a place with good access to work. Selling your home and buying a smaller one in a less expensive area can add a substantial amount to your retirement savings.

📘 Learn More: Never underestimate the power of the dark side spending less money. Conscious spending might sound tedious, but it can set you free. Take a look at our interesting study on the impact of accumulating minor savings: How Much Can You Save in a Year?


A change to the cost of your lifestyle isn’t the only thing that will affect your spending in retirement. You may find yourself with other (potentially quite expensive) obligations. For example:

  • Mortgages: Housing is the biggest line item in the average American budget. If you can pay off a house before retiring, you can drastically reduce your spending (and your retirement number). If you carry a mortgage into your retirement, you’ll need to save a lot more money.
  • Caring for Family: Many people are unpleasantly surprised that they have to support someone else when they retire. Depending on the timeline of your life, you may find that you have to pay for your parents’ long-term care or your children’s college tuition in retirement.

Keep these potential risks in mind when you calculate your retirement number. They might not be an issue for everyone, but some of the outcomes may be out of your control.

📘 Learn More: While there’s not much you can do about the financial drain of a parent’s long-term care, you can influence your debts. Take a look at our guide to eliminating it from your life: How to Get Out of Debt in 5 Steps.

Health Costs

Healthcare is consistently one of the most significant hurdles for retirees. Unfortunately, America doesn’t have a perfect solution to the problem. Most Americans will have access to Medicare at age 65. Until then you’d need to purchase healthcare privately from something like the Affordable Care Act (ACA) Marketplace. In 2020, the average cost per month for an individual marketplace plan was a staggering $456[1].

Once you qualify for Medicare, your monthly premiums can still be expensive. A standard Part B plan (the one that covers doctor’s visits) costs $144.60 per month in 2020. As you’ve likely heard, the prices will probably only get higher. Depending on your expected healthcare needs you may choose a Medicare Advantage, Medigap, or Medicare D plan, each of which brings additional costs.

☝️ When you calculate your retirement number, make sure to ask yourself:

  • Will I have Medicare? If so, how much supplemental insurance will I need?
  • If I’m retiring before age 65, how much will I have to pay for private insurance?
  • What should I set aside for deductibles and out-of-pocket costs?

Health and fitness don’t usually come up in personal finance guides, but there’s a very real cost to not taking care of yourself. Budgeting for exercise and preventive medicine can bring big savings down the line.

📘 Read More: Struggling to keep up with your medical bills in retirement? Here are some of our favorite suggestions for ways you can get help: 17 Ways to Get Help Paying Medical Bills in 2021.

3. Adjust for Other Income Sources

Fortunately, saving up a ton of assets to draw from isn’t the only way to support yourself in your retirement years. It’s helpful to have confidence in your ability to survive off your investments, but there’s a high probability that you’ll have other sources of income. For example:

  • Social Security: There’s a common misconception that Social Security funds will dry up at some point, but the truth is that they’ll probably only be reduced, at worst[2]. The estimated average Social Security benefit in 2022 is $1,657 a month[3]
  • Pensions: Defined contribution plans have mostly replaced pension plans, but they do still exist. If you’re lucky enough to be one of the few with access to one, it can make retirement much more affordable.
  • Side hustles: Contrary to popular belief, retirement doesn’t have to be a total cessation of work if that’s not what you’re after. A survey from LIMRA showed that 19% of recent retirees continued working part-time in retirement with no plans to stop[4].

An extra income stream in retirement can be a game-changer. A Social Security benefit or side hustle that brings in just $1,000 a month is equivalent to having an extra $300,000 in your investment portfolio, based on the 4% rule.

📘 Learn More: Want some new ideas for ways to earn extra money in retirement? Take a look at this guide to some of our favorite strategies: 9 Practical Ways to Make Extra Money In Retirement.

4. Add a Comfortable Financial Cushion

It’s always a good idea to have a little bit of extra wiggle room in your retirement number. There will always be variables that you can’t predict, and it pays to err on the side of caution with your finances.

You should also make sure that your financial cushion is big enough to give you peace of mind. Everyone has a different tolerance for risk that affects both their investment strategy and their retirement number. If you need to work an extra year or two to retire without anxiety, go for it. Just try not to let yourself get stuck working forever because you’re too afraid to pull the trigger.

➗ Use our Retirement Calculator to quickly determine how much you need to save for retirement and how long that money will last.

Monitor Your Progress Regularly

Retirement planning is an ongoing process. Set up some time each year (at least) to check in with your financial goals and make sure that you’re on the right track. As you get older, it’s wise to monitor your progress even more closely.

It’s also always a good idea to get help from an expert. They can help make sure that you’re saving enough to retire when you want and guide you through the transition when you approach your retirement number.

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