Picture two neighbors, both 65. Mark can’t wait to criss-cross the country in an RV. Linda plans to volunteer at her local library and garden at home. Even if they retire the same year, their “comfortable”-retirement price tags are miles apart. When you ask, “How much do I need to retire?” you’re really asking, “What will my life cost when the paychecks stop?”
This guide walks you—step by simple step—through figuring out your number. You’ll see how to factor in lifestyle, inflation, taxes, health care, Social Security, and market swings. By the end, you’ll have a clear target and an action plan to hit it.
“Comfortable” Is Personal: Define Your Target Lifestyle
A retirement budget is just a mirror of how you want to spend each day. Before crunching numbers, jot down answers to these three questions:
- Where will you live?
- Staying put in a high-cost coastal city?
- Downsizing to the suburbs?
- Chasing sunshine (and lower taxes) in states like Florida or Texas?
- How will you spend your time?
- Frequent flyer miles for grand-kid visits or bucket-list trips?
- Hobbies that cost more time than money—like woodworking or pickleball?
- A part-time “fun job” or passion side hustle that brings in extra cash?
- How long might you need the money?
- Check family longevity. If relatives sail past 90, plan on funding 30-plus years.
- Think about health history and lifestyle. An active 55-year-old nonsmoker can expect a longer retirement runway than a sedentary smoker.
Write the answers in plain language. You’ll use them in the next sections to pin down real-life costs.
The Four Big Budget Buckets in Retirement
| Bucket | Typical Share of Your Budget | What’s Inside? |
|---|---|---|
| Essentials | ~40-50 % | Housing (rent/mortgage, HOA, property tax), food, utilities, basic insurance |
| Discretionary Fun | ~20-30 % | Travel, dining out, hobbies, gifts |
| Health Care | ~15-20 % | Medicare premiums, Medigap or Advantage plans, out-of-pocket drugs and procedures |
| Taxes & Inflation Reserves | ~10-15 % | Federal and state income tax, property tax hikes, everyday price increases |
Quick reality check: A healthy 65-year-old woman today may spend about $195,000 on medical costs alone over a 23-year retirement.
Rules of Thumb—Quick Benchmarks, Not Gospel
The 4 % Rule
This classic rule says you can withdraw 4 % of your portfolio in year one, then adjust that dollar amount for inflation each year, and odds are high your nest egg lasts 30 years. It’s based on U.S. market history since 1926. Use it as a starting point, not a promise.
Income-by-Age Multiples
Fidelity suggests saving roughly 1× your salary by age 30, 3× by 40, 6× by 50, 8× by 60, and 10× by age 67.
Social Security Replacement Ratios
Social Security replaces about 40 % of the average worker’s pre-retirement pay. Higher earners get a lower percentage; lower earners get more.
Pros & Cons
| Pros | Cons |
|---|---|
| Easy yardsticks to see if you’re on track | One-size-fits-all ignores your location, lifestyle, taxes |
| Motivate quick course corrections | Market history ≠ future returns |
Build Your Retirement Number Step by Step
Step 1: Estimate Annual Spending in Today’s Dollars
Add the four buckets. Suppose you land on $75,000.
Step 2: Project Future Costs
Use a realistic inflation rate. Many planners use 2.5-3 %.
Example: $75,000 today at 3 % inflation grows to about $100,700 in 10 years.
Step 3: Subtract Guaranteed Income
- Social Security: The average benefit for 2025 is $1,976 a month—about $23,700 a year.
- Pension or annuity: Add any you’ll receive.
Assume you and a spouse get $40,000 combined.
Step 4: Apply a Safe Withdrawal Rate
Needed from portfolio: $100,700 – $40,000 = $60,700 first-year gap.
Using a 4 % rate: $60,700 ÷ 0.04 = $1.52 million.
Step 5: Stress-Test the Plan
- Run a free calculator like FIRECalc or NewRetirement to test thousands of market scenarios.
- Try “guardrail” approaches that cut withdrawals after poor market years and loosen them after good years.
If the Monte Carlo odds dip below 80 % success, tweak spending, work longer, or save more.
Wild Cards That Move the Goalpost
- Inflation spikes (think 2021–2023 CPI jumps) can quickly raise day-to-day costs.
- Sequence-of-returns risk: Big market drops early in retirement hurt more than later drops.
- Longevity: Outliving your assets is a bigger threat than dying with a leftover balance.
- Health-care inflation: Medical prices often rise faster than overall inflation.
- Tax rules: Congress can change brackets, deductions, or Social Security taxation. Plan reviews every year keep you nimble.
Closing the Gap If You’re Behind
Super-Charge Savings
- Max out 401(k) plus the $7,500 catch-up if you’re 50 +.
- Fund an HSA if you’re in a high-deductible plan—triple tax-free growth.
Work a Little Longer
Each extra year can:
- Add a fresh chunk of savings.
- Let existing investments grow.
- Boost Social Security by 7-8 % per delayed year (up to age 70).
Trim Housing Costs
- Downsize: Unlock home equity and cut maintenance.
- House-hack: Rent out a basement or spare room.
- Relocate: Moving from San Francisco to Phoenix can cut living costs by 30 % or more.
Geographic Arbitrage Abroad
Places like Portugal, Mexico, or Costa Rica offer warm weather and health-care costs at 50-60 % of U.S. levels.
Add New Income Streams
- Dividend-paying stocks or REITs
- Part-time consulting in your field
- Online courses, ebooks, or Etsy crafts
Turning Savings into a Paycheck
Bucket Strategy
- Bucket 1 (0-3 years): Cash and ultra-short bonds—your living-expense firewall.
- Bucket 2 (4-9 years): Intermediate bonds and dividend stocks.
- Bucket 3 (10 + years): Growth stocks and real estate funds to beat inflation.
Guardrail Method
Withdraw a fixed percentage (say, 5 %) but cap cuts and raises inside preset “guardrails.” If the portfolio falls 20 %, you tighten the belt; if it rises 20 %, you get a raise.
Tax-Smart Withdrawal Order
- Taxable accounts (sell long-term gains first).
- Traditional 401(k)/IRA.
- Roth accounts last—let them grow tax-free for heirs or late-life medical costs.
Role of Annuities
A low-cost single premium immediate annuity (SPIA) can cover essentials and hedge longevity risk. Keep annuity purchases to the amount needed for basic bills.
Healthcare & Long-Term-Care Planning
| Medicare Part | What It Covers | 2025 Standard Cost |
|---|---|---|
| A | Hospital stays | $0 premium for most |
| B | Outpatient/doctor visits | $185/mo premium; $257 deductible |
| D | Prescription drugs | Varies by plan |
- Medigap fills many Part A/B gaps but costs $150–$250 a month.
- Medicare Advantage rolls Parts A, B, and often D into one plan—lower premiums but smaller provider networks.
Long-Term Care (LTC)
Seven in ten Americans will need some LTC. Compare stand-alone LTC insurance with hybrid life + LTC policies, or plan to self-fund with a dedicated investment bucket.
HSAs
If you still have an HSA, leave the funds invested. Withdraw tax-free for Medicare premiums, dental, or hearing costs.
Protecting the Nest Egg
- Inflation-Hedging Assets
- TIPS
- Real estate investment trusts (REITs)
- Dividend-growing blue-chip stocks
- Diversification & Rebalancing
- Keep bonds in tax-advantaged accounts to shelter income.
- Rebalance once a year or when your stock allocation drifts more than ±5 %.
- Estate Planning 101
- Update wills and beneficiary forms.
- Set up durable powers of attorney.
- Consider a revocable trust if you own property in multiple states.
DIY Tools & Professional Help
- Free Calculators:
- FIRECalc (sequence-of-returns risk)
- NewRetirement (comprehensive cash-flow modeling)
- SSA’s “My Social Security” estimator
- Robo-Advisor vs. Human CFP®
- Robos cost ~0.25 % a year and handle rebalancing.
- A fiduciary CFP® charges 1 % or a flat fee and offers custom tax, estate, and insurance advice.
- Must-Reads & Listens:
- The Simple Path to Wealth by JL Collins
- Podcasts: ChooseFI, Retirement Answer Man
- Blogs: The Retirement Manifesto, Kitces.com
Conclusion — Your Next Three Steps
- Run the numbers tonight. Plug your spending, Social Security, and investment balance into a calculator.
- Pick one gap-closing move. Maybe it’s maxing that HSA, upping 401(k) deferrals, or penciling in two extra working years.
- Schedule an annual “retirement number check-up.” Markets, tax law, and your dreams shift. Revisit the plan every year and tweak as needed.
Comfortable retirement isn’t about hitting some magic lump-sum everyone shares. It’s about aligning your money with your life. Take the first small step today, keep adjusting, and you’ll put yourself on the path to decades of worry-free living.
FAQ
- What is a good monthly income to retire on in the U.S.?
It varies, but many households aim for 70-80 % of their pre-retirement take-home pay, adjusted for taxes and lifestyle. - Is $1 million enough to retire comfortably at 65?
Yes for some, no for others. At a 4 % withdrawal rate, $1 million yields about $40,000 a year before taxes. Add Social Security and compare to your spending. - How does inflation impact my retirement savings?
Rising prices erode purchasing power. Building a portfolio with growth assets and adjusting withdrawals annually helps keep pace. - Can I retire without a 401(k)?
Absolutely—but you’ll need other tax-advantaged accounts (IRA, HSA), brokerage savings, or real-estate income to replace it.
Ready to dig deeper? Bookmark this guide and revisit it every year—your future self will thank you.