The Retirement Number: What It Really Means
Your "retirement number" is the total amount of invested assets you need to cover your living expenses indefinitely without working. It's the single most important figure in your financial planning journey.
The good news? It's simpler to calculate than most people think. The bad news? Most Americans significantly underestimate how much they'll need.
The 4% Rule: Your Starting Point
The 4% rule, derived from the Trinity Study (1998, updated by researchers at Trinity University), states that you can withdraw 4% of your portfolio in year one of retirement, then adjust for inflation each year, and your money should last at least 30 years with a high probability of success (~95% historically).
Annual Expenses × 25 = Your Retirement Number
| Monthly Expenses | Annual Expenses | Retirement Number (25×) |
|---|---|---|
| $3,000 | $36,000 | $900,000 |
| $5,000 | $60,000 | $1,500,000 |
| $7,500 | $90,000 | $2,250,000 |
| $10,000 | $120,000 | $3,000,000 |
Factor in Social Security
Social Security can significantly reduce your retirement number. The average monthly benefit for retired workers in 2026 is approximately $1,976 (following the 2.5% COLA increase). If you're married and both qualify, that's roughly $3,950/month combined.
Adjusted formula: (Monthly Expenses − Social Security) × 12 × 25
For example, if you need $5,000/month and expect $1,976 from Social Security, you only need to cover $3,024/month from your portfolio — reducing your target from $1.5M to approximately $907,200.
Healthcare: The Hidden Cost
Healthcare is the most underestimated retirement expense. According to Fidelity's annual Retiree Health Care Cost Estimate, a 65-year-old couple retiring in 2025 can expect to spend approximately $315,000 on healthcare throughout retirement, even with Medicare. Factor in $500–$800/month for health-related expenses before Medicare eligibility at 65.
How Long Will It Take?
| Monthly Investment | Target: $1M (7% avg) | Target: $2M (7% avg) |
|---|---|---|
| $500 | ~33 years | ~40 years |
| $1,000 | ~26 years | ~33 years |
| $2,000 | ~20 years | ~26 years |
| $3,000 | ~16 years | ~22 years |
Key Takeaways
Start with the 4% rule as your baseline, subtract expected Social Security income, add a buffer for healthcare and inflation, and use our passive income calculator to model different scenarios. The earlier you start, the more compound interest works in your favor.