What is Your Magic Retirement Number?

Have you thought about your number recently?

According to a recent study by Northwestern Mutual, Americans expect they will need $1.26 million to retire comfortably.

When you first hear that retirement number of $1.26M, does that sound impossibly high? Does it sound way too low?

Or, maybe your reaction was like what my five-year-old says when questioned about who made the mess:

“No clue.”

I think it’s safe to say that, at some point, most professionals accept that they need to save for retirement. Hopefully, you are in that group and have been investing early and often.

However, I suspect most people have never thought about how much they’ll actually need to retire comfortably. That’s understandable since retirement can seem like such a far-off goal.

Still, it’s a good idea to start thinking about how much you’ll need to retire comfortably. We’ll refer to that amount as your magic retirement number.

That way, you can start taking the necessary steps today to reach that magic retirement number.

Today, we’ll learn how to calculate your magic retirement number.

So, how do I figure out my magic retirement number?

To answer that question, let’s turn to the “4% Rule.”

The 4% Rule is one of the most popular ways in the personal finance community to ballpark how much money you’ll need in retirement.

Of course, your personal answer depends on a variety of factors, like when you want to retire and how much you expect to spend in retirement.

You can imagine how someone hoping to achieve FIPE (Financial Independence Pivot Early) may require a different amount than some retiring in his 70s.

Your answer may also change after reading a book like Die with Zero, where author Bill Perkins brilliantly argues that most of us are actually saving too much for retirement.

In any event, the 4% Rule can give you a good idea of where you currently are. Then, you can decide what changes you may want to make to ensure you hit your magic number.

Let’s dive in.

What is the 4% Rule?

The 4% Rule suggests that you can safely withdraw 4% of your investments each year and expect your money to last for 30 years.

Without getting too technical, the 4% Rule is based off of research looking at historical investment gains, inflation, and other variables.

For simplicity, let’s say you have $1 million in your portfolio. According to the 4% Rule, you can safely withdraw $40,000 per year (4% of your portfolio) and not run out of money for 30 years.

Using the magic retirement number of $1.26 million, you could safely withdraw $50,400 and not run out of money for 30 years.

These simple examples show how you can take your current retirement savings and project how much you can safely spend so your money lasts 30 years.

The 4% Rule also works in reverse.

By that, I mean you can use the 4% Rule to ballpark how much money you’ll need in retirement to maintain your current lifestyle. We’ll look at exactly how to do that below.

In either case, the 4% Rule is an effective and easy way to start thinking about a magic retirement number.

Use the 4% Rule as an easy projection tool, not an actual withdrawal rate.

I view the 4% Rule as a tool to ballpark your magic number, as opposed to a strict withdrawal rate once you actually retire.

I point that out because there’s some debate in the personal finance community as to whether 4% is still a safe withdrawal rate in today’s economic environment.

For our purposes, I’m not too concerned about that debate.

Once you get to retirement, your actual withdrawal rate may be higher or lower than 4% depending on a variety of factors.

Regardless, the 4% Rule is a great way to start thinking about how much you’ll need in retirement.

So, let’s practice using the 4% Rule.

Our goal is to help you project a magic retirement number based on your current spending habits.

How to use the 4% Rule based on your current savings.

We mentioned above that the 4% Rule works two ways.

First, you can take your current retirement savings and calculate how much you can safely spend so your money lasts 30 years.

If you have $1 million invested, the 4% Rule says you can safely spend $40,000 annually and expect your money to last 30 years.

Current Savings x 4% (.04) = Annual Retirement Spending

$1,000,000 x .04 =$40,000.00

That’s a useful calculation, especially if you’re nearing retirement age and just want to know how much you can spend each year.

But, what if you don’t exactly know when you want to retire?

Your main priority may not be to retire by a certain age. Instead, your aim may be to retire with enough money to maintain your current lifestyle. You’re determined to continue working for as long as it takes.

To calculate that magic retirement number, you can once again use the 4% Rule.

How to use the 4% Rule based on your current spending habits.

The second way to use the 4% Rule is to start with your current spending habits to project how much money you’ll need to maintain that level of spending in retirement.

This may seem obvious, but to do so, you’ll first need to know your current spending habits.

If you don’t know how much you’re currently spending on a monthly basis, take a look at our budgeting series here.

The good news is that once you’ve created a Budget After Thinking, this next part is easy.

To calculate your magic retirement number based on current spending, simply follow these steps:

1. Add up the amount your’re spending each month in Now Money and Life Money.
2. Take that number and multiply it by 12 to see how much your lifestyle costs per year.
3. Divide that yearly spending by .04

That’s your magic retirement number.

Current Spending / 4% (.04) = Magic Retirement Number

One note related to your Budget After Thinking: for this exercise, ignore your Later Money (with one caveat). Only use your Now Money and Life Money totals.

The reason is that since you’re retiring, you likely won’t be focused on saving for future goals anymore. Presumably, you’ve already reached your goals. If you include your Later Money in your monthly spending, you’re magic retirement number will be artificially inflated.

The caveat is for those people pursuing FIPE. In that case, you should include your Later Money in your calculations. That way, you have a buffer in place to cover you over a longer retirement period.

Now, let’s use some real numbers to help illustrate how to use the 4% Rule to project your magic retirement number.

Here’s how to use the 4% Rule to forecast your magic retirement number.

Let’s look at an example using the 4% Rule to forecast your magic retirement number.

Let’s say that you reviewed your Budget After Thinking and learned that you spend $6,000 per month in Now Money and $4,000 per month in Life Money.

Combined, that means your lifestyle costs you $10,000 per month, or $120,000 per year.

To figure out how much you would need in investments to cover your current lifestyle for 30 years, divide $120,000 by .04.

Current Spending / 4% (.04) = Magic Retirement Number

$120,000 / .04 =$3,000,000.00.

That means to maintain your current lifestyle of spending $120,000 per year for 30 years, you would need $3 million in investments.

In other words, your magic retirement number is $3 million.

If that number seems impossibly high to you, you now know to make some adjustments to your current spending.

Let’s look at how your magic number changes with some tweaks to your spending habits.

Assume you’re open to cutting some expenses in retirement to reduce your magic number. That might mean spending less money on transportation, meals out, your wardrobe, and whatever else.

Let’s assume that by making those cuts, you shaved $1,000 off your Now Money expenses.

As a result, you only need $9,000 to cover your retirement lifestyle each month. That’s $108,000 per year.

Using the 4% Rule, your magic retirement number has now shrunk to $2.7 million.

$108,000 / .04 =$2,700,000.00.

That means that by reducing your spending by $1,000 per month, you have reduced your magic retirement number by $300,000.

It also means you have just sped up your timeline to retirement by reducing your lifestyle expenses.

A surprising note about people’s magic retirement number in 2025.

At the beginning of this post, we learned that according to a recent study by Northwestern Mutual, Americans expect they will need $1.26 million to retire comfortably.

What’s most interesting to me is that this year’s magic retirement number dropped from $1.46 million reported in the same study just last year.

Think about that for a minute.

Because of inflation (and now tariffs), things are only getting more expensive year over year. If anything, you would think that people would say they need more money to retire comfortably in today’s enviornment.

Except, the study found the opposite happened. Instead of wanting more money to pay for all these more expensive things, people think they can retire comfortably on nearly 14% less money.

How does that make any sense?

For starters, I doubt many of these respondents used the 4% Rule to project their magic retirement number based on their current spending habits.

If they had, they would have seen that their spending has likely gone up this year, unless they’ve made big cutbacks. Then, they would have seen that their magic retirement number also went up to account for those higher expenses.

Besides ignoring the 4% Rule, my other takeaway relates to one of our major themes at Think and Talk Money:

Money is emotional.

If our money thoughts were strictly rational, there would be no way that someone could say he needs less money to survive when everything is more expensive.

The reality is that our decisions don’t always make rational sense.

And, that’s OK.

Recognizing that our money decisions are not always rational, what can we do about it?

We can think and talk about money.

Talking to our people about our money decisions, like we would anything else, is the best way to find a balance between our emotional side and our rational side.

So, what is your magic retirement number?

Now you know how to use the 4% Rule to calculate your magic retirement number.

Be sure to use the 4% Rule as a tool to help you think about making adjustments to your current spending or savings habits.

Knowing how to use the 4% Rule, does a magic number of $1.26 million seem too high, too low, or maybe just right?

Let us know in the comments.