The 25x Rule Explained
The 25x rule is a quick way to estimate how large your investment portfolio needs to be to fund your retirement without ever running out of money. The formula is simple: take your expected annual spending in retirement and multiply it by 25.
A person planning to spend $50,000 per year needs roughly $1.25 million. Someone planning $80,000 per year needs $2 million. The figure doesn't include Social Security, pension income, or rental income — those reduce the portfolio you need.
The rule assumes you'll withdraw about 4% of your portfolio per year. It came from research known as the Trinity Study, which looked at historical US market data and found that a 4% withdrawal rate sustained portfolios across the vast majority of 30-year periods, including ones covering major market crashes.
The 4% Withdrawal Rule
The 4% rule says that in the first year of retirement, you withdraw 4% of your total portfolio. In subsequent years, you adjust that amount for inflation. Historically, this approach has had a very high success rate over 30-year periods in US market data.
Its limitations are worth understanding. The original research was based on US market returns, which have been historically strong. It was designed for 30-year retirements (retiring at 65, living to 95). It doesn't account for major expense spikes like long-term care.
A 2024 update of the Trinity Study found that a 4% withdrawal rate succeeded in over 95% of historical 30-year periods using a 50/50 stock-bond portfolio. For 40-year periods (relevant to early retirees), the success rate dropped — researchers suggest 3.3–3.5% is more appropriate for longer horizons. (Source: Cooley, Hubbard, and Walz, "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable," updated analysis.)
Calculating Your Actual Number
Here's a more practical way to estimate your retirement number in three steps.
Step 1: Estimate annual retirement spending. Most people spend 70–80% of their pre-retirement income in retirement — lower housing costs, no commuting, no retirement savings contributions. Be specific: housing, food, travel, healthcare, hobbies.
Step 2: Subtract guaranteed income. If you'll receive Social Security, a pension, rental income, or annuity payments, subtract those from your annual spending estimate. Only the shortfall needs to come from your investment portfolio.
Step 3: Multiply the remainder by 25 (or 30 for early retirement).
| Annual Spending | Social Security / Pension | Portfolio Needed (25x) | Retire Age |
|---|---|---|---|
| $40,000 | $20,000 | $500,000 | 65 |
| $60,000 | $20,000 | $1,000,000 | 65 |
| $80,000 | $30,000 | $1,250,000 | 65 |
| $60,000 | $0 | $1,800,000 | 50 (use 30x) |
Hypothetical examples for illustration only. Actual figures depend on investment returns, inflation, and personal circumstances.
Savings Benchmarks by Age
Fidelity Investments publishes widely referenced retirement savings benchmarks based on multiples of your annual salary:
- By age 30: 1x your annual salary saved
- By age 40: 3x your annual salary saved
- By age 50: 6x your annual salary saved
- By age 60: 8x your annual salary saved
- By age 67: 10x your annual salary saved
These assume you retire at 67 and replace about 45% of your pre-retirement income from savings (with the rest from Social Security). If you plan to retire earlier or spend more, the targets are higher. If you have a generous pension, they may be lower.
Factors That Raise or Lower Your Target
Healthcare costs. This is consistently underestimated. Fidelity's 2024 Retiree Health Care Cost Estimate found that a 65-year-old couple may need approximately $315,000 set aside specifically for healthcare costs in retirement, not covered by Medicare. If you retire before 65 in the US, you'll need to fund your own health insurance — this can add $10,000–$20,000 per year to your expenses.
Retirement age. Retiring at 55 instead of 65 means 10 more years of withdrawals and 10 fewer years of contributions. Your portfolio needs to last longer and starts at a lower balance. Early retirement requires significantly more savings or lower spending.
Inflation. Even modest 3% annual inflation cuts purchasing power roughly in half over 25 years. Your investment portfolio needs to grow faster than inflation throughout retirement, which means maintaining some equity exposure even after you stop working.
Other income sources. A pension that pays $2,000 per month ($24,000 per year) reduces your required portfolio by $600,000 using the 25x formula. Social Security benefits can have a significant impact — maximising them by delaying to age 70 can increase your monthly benefit by roughly 32% compared to claiming at 67.
Retirement Planning in the UK, India, and Canada
UK: The state pension provides a baseline — the full new State Pension is currently £11,502 per year (2026/27) for those with 35+ qualifying National Insurance years. Most financial planners suggest UK retirees need personal savings of 20–25x their expected additional annual expenses beyond the state pension. The Pension Advisory Service offers free guidance at MoneyHelper.
India: Retirement planning in India requires accounting for both longevity (average life expectancy rising significantly) and inflation, which has historically run higher than in Western economies. A common planning approach uses a corpus of 25–30 times annual expenses, adjusted for expected inflation. EPF (Employees' Provident Fund) provides a mandatory savings base for salaried workers. NPS (National Pension System) is a voluntary supplement available to all citizens, with tax benefits under Section 80C and 80CCD(1B). SEBI's financial education resources at sebi.gov.in provide additional guidance.
Canada: Canadian retirees have three layers: OAS (Old Age Security, available from age 65), CPP (Canada Pension Plan, based on lifetime contributions), and personal savings in RRSPs and TFSAs. The maximum combined OAS and CPP benefit for a single person can exceed $2,000/month. Most planners suggest personal savings of 15–20x your annual spending beyond CPP and OAS income. Service Canada's retirement income calculator is available at canada.ca.