The 4% Rule Explained
The 4% rule says you can withdraw 4% of your retirement savings in your first year of retirement, then adjust for inflation each year, with a high probability that your money lasts 30 years. Under this rule, if you need $40,000 per year from investments, you need $1 million saved ($40,000 / 0.04 = $1,000,000). The rule was based on historical US stock and bond returns from 1926-1995 and is a guideline, not a guarantee. Many experts now recommend 3-3.5% for longer retirements.
Savings Benchmarks by Age
| Age | Target (1x Salary) | Target (3x Expenses) |
|---|---|---|
| 30 | 1x salary | $90,000 |
| 35 | 2x salary | $180,000 |
| 40 | 3x salary | $270,000 |
| 45 | 4x salary | $360,000 |
| 50 | 6x salary | $540,000 |
| 55 | 7x salary | $630,000 |
| 60 | 8x salary | $720,000 |
| 65 | 10x salary | $900,000 |
Social Security and Pensions
Social Security replaces about 40% of pre-retirement income for the average worker. If you have a pension, factor that into your calculations too. The retirement calculator lets you include Social Security and pension income to see how much you still need from your savings. Remember: Social Security benefits increase by about 8% per year if you delay claiming from age 62 to 70.
Frequently Asked Questions
What if I want to retire early (before 59.5)?
Early retirement requires a higher savings rate (typically 50%+ of income) and careful tax planning. You can access 401(k) funds penalty-free through Roth conversion ladders or SEPP (72t) distributions. Health insurance before Medicare also needs to be factored in. The retirement calculator includes early retirement scenarios.
How do I account for inflation in my retirement plan?
Use real (after-inflation) return rates in your calculations. If you expect 7% market returns and 3% inflation, use 4% as your real return. The retirement calculator has an inflation toggle to show both nominal and real (inflation-adjusted) projections.
Try the Retirement Calculator
Calculate how much you need to save for retirement with our free calculator.