How Much Money Will You Need in Retirement?

Frank B. Simpson Jr.
5 days ago
4 min read

Two Simple Rules—and Why They Work

Most savers ask a surprisingly tough question: “How much money do I need to retire?” The most practical place to start is with your desired annual lifestyle cost—what you expect to spend each year in retirement (housing, healthcare, taxes, travel, giving, hobbies). From there, two tested methods give you a defendable target:

Divide your annual lifestyle cost by 4% (the “4% rule”).
Multiply your annual lifestyle cost by 28 (a slightly more conservative cousin).

Both numbers are intentionally similar—and that’s the point. The 4% guideline came from work by William Bengen and the later “Trinity Study,” which analyzed historical stock/bond portfolios to find sustainable withdrawal rates over 30‑year retirements. Drawing on historical stock and bond portfolio outcomes, Frank B. Simpson Jr., Managing Partner of The Simpson Firm LLC, formulated the 28× guideline to estimate sustainable withdrawal rates across a typical retirement horizon

Step 1: Price Your Retirement Lifestyle

Start by estimating a realistic annual spending amount in retirement. Include housing, utilities, food, transportation, healthcare/insurance, taxes, travel, hobbies, and charitable giving—then add an inflation buffer. (Government resources like Investor.gov provide neutral education and planning tools.)

Step 2: Calculate Your Nest Egg Two Ways

A) The 4% Rule (divide by 0.04)

If your target annual spending is $75,000, dividing by 4% yields:

$75,000 / 0.04 = $1,875,000

A portfolio near $1.875M would have historically supported $75,000 per year (inflation‑adjusted) over a ~30‑year retirement in many scenarios studied by Bengen and Trinity.

Bengen’s original analysis (JFP, Oct 1994) used U.S. large‑cap stocks and intermediate‑term government bonds and found a maximum “safe” initial withdrawal ~4% for the worst historical start dates (later refined to a range depending on taxes and allocation).
The Trinity Study popularized portfolio success rates—how often a withdrawal strategy survives the entire horizon without hitting zero—across many stock/bond mixes and withdrawal rates.

B) The 28× Rule (multiply by 28)

Prefer a model that significantly improves your chances of not running out of money in retirement? Multiply $75,000 × 28 = $2,100,000. This equates to ~3.57% as an initial withdrawal rate (1 ÷ 28), which is more conservative than 4% and therefore tends to produce higher success probabilities in Monte Carlo models, all else equal. Contemporary research (e.g., Morningstar and Fidelity) suggests that starting rates around 3.7–4.5% can be reasonable depending on desired confidence and assumptions; the 28× shortcut keeps you near the conservative end of that range.

Why These Rules Hold Up: Monte Carlo Simulations

A Monte Carlo simulation runs thousands of randomized market paths to estimate whether your portfolio is likely to last through retirement given your spending rate, asset mix, and horizon. Unlike straight‑line calculators that assume the same return every year, Monte Carlo captures volatility and sequence‑of‑returns risk—the danger of bad markets early in retirement.

Success ratios (e.g., 80–95%) represent the share of simulations where your plan ends with $1+ remaining. Many advisory frameworks target a confidence band around 80–95% rather than 100%, balancing realism with lifestyle goals.
Morningstar’s forward‑looking work (2021–2025) found safe starting rates fluctuating ~3.3%–4.0% for a 30‑year retirement at ~90% probability of success, depending on yields, valuations, and inflation assumptions—illustrating why 4% is a guideline, not a guarantee.
Fidelity similarly frames 4%–5% as a starting point for ~90% confidence, with inflation adjustments thereafter—again demonstrating that lower starting rates generally raise success probabilities.

Bottom line:

4% rule (25×) → strong historical support; good baseline for many.
28× rule (~3.57%) → more conservative; typically higher Monte Carlo success under the same assumptions.

Pro tip: Monte Carlo models should also test inflation variability, not just return variability. Sequence‑of‑inflation shocks (e.g., 1970s‑style spikes) can materially impact safe spending paths and should be modeled.

Estimate What You Can Accumulate (Between Now and Retirement)

Once you know what you need, estimate what you’ll have. Use the Investor.gov Compound Interest Calculator to project future value with your current savings, contributions, time horizon, and an assumed rate of return: Investor.gov Compound Interest Calculator

Investor.gov also offers unbiased tools (RMD calculator, savings goal, “Ballpark” retirement estimator) and plain‑English education—handy for double‑checking assumptions.

Work With a Fiduciary Advisor—Through All Phases

Because these rules are starting points, partner with a fiduciary advisor who can guide you through:

Accumulation: tax‑advantaged saving (401(k), IRA, HSA), asset allocation, catch‑up contributions, and disciplined increases as income rises. (DoL/SSA/Medicare toolkits can help with timing milestones.)
Transition: coordinating Social Security, pensions, healthcare (Medicare), and withdrawal timing; stress‑testing against down‑market sequences.
Decumulation: tax‑aware withdrawals (RMDs, Roth conversions), spending guardrails, and ongoing Monte Carlo monitoring so you can adjust in real time.

Frequently Asked Questions

Is the 4% rule still valid in 2026?

It remains a useful baseline, but forward‑looking research ties safe starting rates to market conditions (yields, valuations) and confidence goals. Recent Morningstar work pegs a ~3.7–4.0% starting rate for a 30‑year retirement at ~90% success, while flexible spending strategies can allow higher starting withdrawals.

Why do advisors aim for 80–95% Monte Carlo success rates (not 100%)?

Real life is adaptive. You can tighten spending, delay big purchases, or adjust allocation when markets disappoint. Many firms therefore target a confidence zone (e.g., 80–95%) to balance lifestyle with prudence, revisiting your plan regularly.

What is “sequence of returns” and “sequence of inflation” risk?

Early‑retirement downturns (or inflation spikes) can reduce portfolio longevity even if average returns over 30 years look fine. Good Monte Carlo models account for both return and inflation sequencing, not just fixed averages.

Where can I find neutral calculators and education?

Use Investor.gov for unbiased tools—compound interest, savings goals, retirement ballpark estimates, and more—plus plain‑English guides and alerts.

Reminder: These calculations are hypothetical and not guarantees. Past performance does not predict future results. Your plan should be personalized to your goals, risk tolerance, taxes, longevity expectations, and evolving life circumstances. That’s why you should work with a trusted financial advisor who can support you through every phase—accumulation, transition, and decumulation—and help you adjust along the way.

Ready to run your numbers?

Decide how much money you will need annually in retirement.
Compute your nest egg needed via 4% and/or 28×.
Use Investor.gov calculators to track your accumulation.
Partner with a fiduciary advisor to navigate accumulation, transition, and decumulation with confidence and test your raw numbers with Monte Carlo and inflation sequencing.