How much do I need to retire?

Where the 25x number comes from

The 25x rule is the flip side of the 4% rule. The 4% rule was first worked out by financial planner William Bengen in 1994, then popularized by a 1998 study from three professors at Trinity University. The research found that a retiree who withdrew 4% of their portfolio in the first year, and adjusted that dollar amount for inflation each year, had a high chance of their money lasting 30 years with a stock-heavy mix of roughly half to three-quarters stocks.

If you can safely withdraw 4% a year, then you need 100% divided by 4%, which is 25, times your annual spending. The arithmetic checks out both ways: $1,000,000 times 4% is $40,000 a year.

What actually changes your number

The 25x estimate is a starting point. A handful of things shift it, and the first one matters most:

• How much you will really spend. This is the biggest lever by far. A paid-off house, a lower-cost area, or kids who have left home all shrink the number. Your retirement spending, not your income today, is what sets the target.
• How long your retirement is. The 4% rule was tested over 30 years. Retiring at 40 instead of 65 means planning for 50 years or more, so many early retirees use a more cautious withdrawal rate closer to 3.25-3.5%, which raises the multiple to roughly 28 to 31 times spending (a lower rate means a higher multiple).
• Other income. Social Security, a pension, rental income, or part-time work each cover part of your spending, so your portfolio only has to cover the rest. If Social Security will cover $20,000 of a $50,000 budget, you only need to self-fund $30,000, or about $750,000 instead of $1.25M.
• Healthcare before 65. In the US, Medicare starts at 65. Retiring earlier means budgeting for health insurance in the meantime, often through the ACA marketplace. Fold that cost into your annual spending number.
• Taxes. Withdrawals from pre-tax accounts like a traditional 401(k) or IRA are taxable income; Roth withdrawals are not. Two people with the same balance can have different spendable amounts, so plan around what you keep, not just the total.

Is the 4% rule still safe?

It is a rule of thumb, not a guarantee. It is based on US historical returns and a 30-year window, so it can be too optimistic for a very long early retirement and too conservative if markets are kind.

Two things add a lot of margin: a slightly lower withdrawal rate (3.25-3.5%) for long horizons, and flexible spending, meaning you trim a little in down years instead of withdrawing the same amount no matter what. Treat your number as a target to refine over time, not a line you cross once.

How to find your own number

Compound Joy is a free tool that does this math for you. Enter your spending and your accounts, and it shows your FIRE number, how far along you are, and the age you could realistically stop working. It also stress-tests the plan with a Monte Carlo simulation across thousands of market scenarios, so your answer does not rest on a single optimistic average. No account or payment needed to start.