Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Converting an annual spending gap into a target portfolio balance depends heavily on the assumed withdrawal rate, and that single assumption moves the target substantially. The same spending gap produces meaningfully different required portfolios depending on which withdrawal rate gets applied to it.
Before you rely on it
What to check
Run the target at more than one withdrawal-rate assumption to see the actual range, rather than anchoring on one figure as if it were the only reasonable answer.
The common error
Where people go wrong with retirement goal calculator
Treating the calculated target balance as a single precise number rather than a range depending on withdrawal-rate assumptions. A modest change in that one input shifts the required portfolio meaningfully.
Sensitivity evidence
How initial withdrawal rate changes the target retirement portfolio
| Initial withdrawal rate | Target retirement portfolio | Annual portfolio income |
|---|---|---|
| 2.0% | $2,500,000 | $50,000 |
| 3.0% | $1,666,667 | $50,000 |
| 4.0%worked example | $1,250,000 | $50,000 |
| 5.0% | $1,000,000 | $50,000 |
| 6.0% | $833,333 | $50,000 |
Every input, tested
Which input moves the target retirement portfolio most
| Input | Tested from | To | Target retirement portfolio at each end | Swing |
|---|---|---|---|---|
| Initial withdrawal rate | 3.0% | 5.0% | $1,666,667 to $1,000,000 | $666,667 (53%) |
| Desired annual retirement spending | $72,000 | $88,000 | $1,050,000 to $1,450,000 | $400,000 (32%) |
| Expected annual fixed income | $27,000 | $33,000 | $1,325,000 to $1,175,000 | $150,000 (12%) |
Two variables at once
Target retirement portfolio by initial withdrawal rate and desired annual retirement spending
| Initial withdrawal rate \ Desired annual retirement spending | $64,000 | $80,000 | $96,000 |
|---|---|---|---|
| 2.0% | $1,700,000 | $2,500,000 | $3,300,000 |
| 3.0% | $1,133,333 | $1,666,667 | $2,200,000 |
| 4.0% | $850,000 | $1,250,000 | $1,650,000 |
| 5.0% | $680,000 | $1,000,000 | $1,320,000 |
| 6.0% | $566,667 | $833,333 | $1,100,000 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Desired annual retirement spending | $80,000 |
| Expected annual fixed income | $30,000 |
| Initial withdrawal rate | 4.0% |
| Target retirement portfolio | $1,250,000 |
| Annual portfolio income | $50,000 |
Where the inputs come from
Desired annual retirement spending is what you expect to spend each year in today's dollars, built from your current budget with commuting and payroll taxes removed and healthcare and travel added. Expected annual fixed income covers Social Security, pensions and annuities you expect to receive. The withdrawal rate is the share of the portfolio you take out in the first year; 4% is the classic benchmark, and 3% to 3.5% is safer for long retirements.
Using the target retirement portfolio in a real decision
Then compare the target with your projected savings.
When the result stops applying
The withdrawal rate is a rule of thumb from historical US data over 30-year periods and does not guarantee success. Retirements starting in a market downturn, lasting 40 years or facing high healthcare costs need a lower rate. The calculation is in today's dollars and assumes spending adjusts with inflation. Taxes on withdrawals are not included.
What to compare it with
Project your savings with the retirement savings calculator to see whether you will reach the number, and use the retirement income gap calculator once retirement is near. The FIRE number page applies the same formula to early retirement. The retirement Monte Carlo and sequence risk calculators stress-test whether the withdrawal rate holds.
People also ask
Frequently asked questions
Where does the 4% rule come from?
It comes from studies of historical US returns showing that withdrawing 4% of the starting balance, adjusted for inflation, lasted 30 years in nearly all periods. It is a guide, not a guarantee.
Should my spending fall in retirement?
Often it does for commuting, savings and work costs, but healthcare and leisure can rise. Many retirees spend less in their later years, though long-term care can reverse that.
Do I need to subtract Social Security?
Yes. Social Security reduces the amount your portfolio must supply, which is why fixed income is an input. Ignoring it can overstate the target by hundreds of thousands of dollars.