Key Takeaway: Use the 4% rule — multiply your annual expenses by 25. For $50K/year lifestyle, you need $1.25M. For $80K/year, you need $2M. Social Security adds $1,500-3,500/month on top.
The 4% Rule Explained
The 4% rule: Withdraw 4% of your retirement portfolio in year 1, adjust for inflation each year after. Your money should last 30+ years. Why 4%? Historical data shows a 4% withdrawal rate has 95% success rate (portfolio doesn't run out). **Example:** • You have $1,000,000 • Year 1 withdrawal: $40,000 (4%) • Year 2 (3% inflation): $41,200 • Year 3: $42,436 Your portfolio keeps growing 6-8% annually, outpacing withdrawals.
Retirement Number by Lifestyle
Annual Expenses × 25 = Your Retirement Number **Lean Retirement ($30K-40K/year):** • Retirement number: $750K - $1M • Lifestyle: Frugal, one car, cook at home, budget travel • Doable in low-cost states (Arkansas, Mississippi) **Comfortable Retirement ($50K-60K/year):** • Retirement number: $1.25M - $1.5M • Lifestyle: Middle-class, own home, occasional dining out, annual vacation • Works in most states except expensive coastal areas **Upper-Middle Retirement ($80K-100K/year):** • Retirement number: $2M - $2.5M • Lifestyle: Nice home, new car every 5 years, international travel, hobbies • Comfortable even in expensive states **Luxury Retirement ($150K+/year):** • Retirement number: $3.75M+ • Lifestyle: Multiple properties, luxury travel, premium everything • High-end coastal living
Don't Forget Social Security
Social Security pays $1,500-3,500/month depending on your work history. **If you claim at:** • Age 62 (early): ~$2,000/month (reduced permanently) • Age 67 (full retirement): ~$2,800/month • Age 70 (delayed): ~$3,500/month (maxed out) For a couple, that's $4,000-7,000/month combined! **Important:** Social Security covers 30-40% of retirement expenses for average retiree. You still need savings for the rest. **Example:** • Annual expenses: $70,000 • Social Security: $30,000 (couple) • Need from portfolio: $40,000 • Retirement number: $40,000 × 25 = $1,000,000
The Healthcare Bomb
Healthcare is the #1 retirement expense killer in the US. **Before Medicare (age 62-64):** • Private insurance: $1,500-2,500/month per couple • ACA marketplace: $500-1,500/month (with subsidies) • Budget: $15,000-30,000/year **After Medicare (age 65+):** • Medicare Part B: $175/month • Medicare Part D (drugs): $50/month • Medigap insurance: $200/month • Total: ~$5,000-8,000/year per person **Lifetime healthcare costs in retirement: $300,000-500,000 per couple.** Fund this via HSA (if eligible) or extra savings.
State-by-State Retirement Costs
**Most Expensive States:** • Hawaii: $100K+/year needed • California (coastal): $90K+/year • New York: $85K+/year • Massachusetts: $80K+/year **Most Affordable States:** • Mississippi: $40K/year comfortable • Arkansas: $42K/year • Oklahoma: $43K/year • Missouri: $44K/year **Best Balance (affordable + quality):** • Florida: No state income tax, warm weather ($55K/year) • Texas: No state income tax, low cost ($50K/year) • Tennessee: No income tax, low cost ($48K/year) • Arizona: Warm, affordable ($52K/year)
The 401(k) + IRA Strategy
**How to build your retirement nest egg:** **Step 1: Max 401(k) employer match** • Average match: 50% on 6% of salary • On $80K salary: $2,400 FREE money annually • Never leave this on the table **Step 2: Max Roth IRA ($7,000/year)** • Tax-free growth forever • Tax-free withdrawals in retirement • No RMDs (Required Minimum Distributions) **Step 3: Max 401(k) ($23,500/year in 2026)** • Tax-deferred growth • Reduces current taxable income • Employer match on top **Step 4: Taxable brokerage (after maxing retirement accounts)** • Index funds (VTSAX, VTI) • Tax-loss harvesting • Flexible withdrawals
How Much to Save by Age
Fidelity's retirement savings milestones: • **Age 30:** 1× salary saved • **Age 40:** 3× salary saved • **Age 50:** 6× salary saved • **Age 60:** 8× salary saved • **Age 67:** 10× salary saved Example: $80K salary • Age 30: $80K saved • Age 40: $240K saved • Age 50: $480K saved • Age 60: $640K saved • Age 67: $800K saved Add Social Security (~$30K/year) + portfolio withdrawal (4% of $800K = $32K) = $62K/year in retirement.
Early Retirement (FIRE)
Want to retire at 40-50 instead of 67? **Save 50-70% of income:** • 50% savings rate: Retire in 17 years • 60% savings rate: Retire in 12.5 years • 70% savings rate: Retire in 8.5 years **Early retirement challenges:** • No Social Security till 62 • No Medicare till 65 (healthcare gap is expensive) • Need larger nest egg (30-40 year retirement vs 20-25) • Access to 401(k) limited till 59½ (unless Rule of 55) **FIRE number:** Annual expenses × 25-30 (4% rule or more conservative 3.5%)