Everyone thinks about retirement numbers: that magical figure you need have saved to live comfortably after your working years are behind you. The reality is that there's no one-size-fits-all answer. Your retirement number is unique, and it ultimately depends on one fundamental question: How much do you realistically expect to spend in retirement?
A couple retiring with a paid-off home and modest travel plans needs a very different nest egg than someone planning world adventures with an outstanding mortgage.
What goes into your calculation?
Before determining your target number, consider these key variables:
1. Expected Social Security Income
• How much will you receive monthly? (Check ssa.gov for your estimate)
• This guaranteed income reduces what you need to withdraw from your portfolio
2. Mortgage Status
• Still paying? This significantly increases your monthly expenses
• Paid off? This substantially reduces your spending needs and is a major retirement advantage
3. Lifestyle Choices
• Modest living: Travel occasionally, enjoy low-cost activities
• Moderate lifestyle: Annual vacations, regular dining out, hobbies
• Extravagant lifestyle: Frequent international travel, luxury experiences, premium activities
4. Other Considerations
• Healthcare costs beyond Medicare
• Inflation expectations
• Longevity in your family
Calculation method 1: the 25x Rule
The 25x Rule works backward from your desired lifestyle.
The formula:
1. Calculate your expected annual retirement expenses
2. Subtract guaranteed income (Social Security, pension)
3. Multiply the remaining "gap" by 25
* All of the below are hypothetical situations; Sarah, Tom, and Patricia are not actual RBC clients.
Example:
Sarah expects $80,000 annual expenses and $30,000 in Social Security:
• Annual gap: $80,000 - $30,000 = $50,000
• Target nest egg: $50,000 × 25 = $1,250,000
Compare this to Tom, who has a $24,000 mortgage:
• Annual expenses: $100,000
• Social Security: $35,000
• Annual gap: $65,000
• Target nest egg: $65,000 × 25 = $1,625,000
That mortgage adds $375,000 to his target. Now consider Patricia, whose mortgage is paid off:
• Annual expenses: $60,000 (no mortgage payment!)
• Social Security: $32,000
• Annual gap: $28,000
• Target nest egg: $28,000 × 25 = $700,000
Eliminating her mortgage reduced her target by $550,000, primarily due to vastly different housing costs.
Calculation method 2: The 4% Rule
The 4% Rule is the inverse of the 25x Rule. It states that you can safely withdraw 4% of your starting retirement portfolio in year one, adjusting for inflation annually, with a very high probability your money will last 30+ years.
Validating Sarah's number:
• Portfolio: $1,250,000
• 4% withdrawal (Year 1): $1,250,000 × 0.04 = $50,000
• Plus Social Security: $50,000 + $30,000 = $80,000
Checking Tom and Patricia: Both their numbers validate similarly—when you multiply their portfolios by 4% and add their Social Security, you get their expected annual expenses.
These methods work together:
• The 25x Rule identifies your target based on your lifestyle and expenses
• The 4% Rule validates that your target is sustainable over 30+ years
If they don't align, it's a red flag to reconsider your expenses or savings target.
What to consider for your individual situation
There's no magic retirement number because there's no magic retirement life that all people strive to achieve. Being honest about the following factors is the best place to start: how much you'll really spend, what your housing costs will be (especially mortgage status), what lifestyle brings you joy, and what guaranteed income you'll receive.
Starting with your lifestyle expectations, use the 25x Rule to identify your target, validate it with the 4% Rule, and adjust it as needed as time goes on. That's how you find your magic number.