Retirement planning needs a clear target, not just good intentions. The multiply-by-25 rule (the “25x rule”) gives a quick, sensible estimate: save about 25 times the annual spending you’ll want your portfolio to fund in retirement.

From there, refine for taxes, market returns, and any other cash flows to turn a rule of thumb into a solid plan.

What It Is

The 25x rule converts your desired yearly retirement spending into a savings goal. Decide the income you want from your portfolio, then multiply by 25. If the goal is $60,000 per year from savings, the target nest egg is roughly $1.5 million. This is a starting line—not the finish—meant to guide contributions and investment choices.

Why It Works

The rule pairs with the widely cited 4% withdrawal guideline. With a diversified portfolio, withdrawing about 4% in the first year—then adjusting that dollar amount for inflation—has often aligned with historical market-data testing over multi-decade retirements, though results vary by inflation, fees, and early market outcomes.

William Bengen, a financial planner, states, “I think the most important facet people overlook is that the 4 percent rule — or the newer version of the 4.7 percent rule — is the worst-case scenario.”

Set Your Target

First, sketch a retirement budget. Separate essentials (housing, food, utilities, insurance, healthcare) from lifestyle (travel, hobbies, gifts). Subtract reliable income such as Social Security, a pension, or rental net income. The gap is what your portfolio must cover. Multiply that gap by 25 to estimate the required nest egg. A $90,000 budget minus $35,000 in other income means $55,000 from savings; 25x suggests about $1,375,000.

Assumptions Matter

The 25x rule assumes your portfolio earns a reasonable long-term return, you keep a balanced allocation, and inflation stays manageable. If expected returns fall or inflation runs hot, you may need a bigger multiplier (for example, 28x or 30x). Conversely, if your withdrawals will be very flexible—cutting back after poor years—you might live well with slightly less.

Reality Checks

- Taxes: The 25x rule is pre-tax. If most savings sit in tax-deferred accounts, gross withdrawals must be higher to meet a net spending goal.

- Healthcare: Premiums and out-of-pocket costs can spike with age; pad estimates accordingly.

- Debt: Entering retirement debt-free can lower your multiplier; carrying debt likely raises it.

- Sequence risk: Bad markets early in retirement can stress portfolios; holding a cash/bond buffer helps.

Other Income Streams

Many retirees don’t need savings to cover every dollar. Social Security, small business income, part-time work, or annuity payments reduce the portfolio burden. Some households only need to generate 45%–60% of desired spending from investments. Re-run 25x using only the portfolio’s share of income, not the entire budget.

Edge Cases

- Early retirement: Needing income for 35–40 years argues for a higher multiplier (think 30x–33x) or a lower initial withdrawal.

- Very long life expectancy: If longevity runs in your family, build in extra years or layer a longevity annuity to cover late-life expenses.

- Big one-time goals: Large gifts, home remodels, or major travel should sit outside the 25x calculation or be planned as staged withdrawals.

25x vs 4% Rule

25x is the savings target; the 4% rule is the spending method that inspired it. Year 1: withdraw about 4% of the starting portfolio value. Later years: increase that dollar amount with inflation, regardless of markets. If you prefer a dynamic approach, you can adjust withdrawals using guardrails (raise after strong returns, trim after weak years) to improve durability.

Make It Yours

1. Adjust the multiplier:

• Higher confidence: 27x–30x if you want more margin of safety.

• More flexibility: 22x–24x if you can cut spending in down markets.

2. Tune the portfolio: A balanced mix (stock/bond/cash) reduces the risk that early losses force permanent cuts. Keep one to three years of essential expenses in cash-like assets to ride out downturns.

3. Automate saving: Max workplace plans, capture employer matches, and add automatic increases each year or with every raise.

Common Missteps

- Counting the whole budget: Apply 25x to the portfolio’s share, not total household spending.

- Ignoring taxes and fees: A 4% withdrawal before taxes and costs can shrink quickly after them.

- Assuming constant returns: Markets are lumpy. Build buffers, not perfection.

- Underinsuring risks: Health, disability (pre-retirement), and long-term-care exposures can derail even well-funded plans.

Quick Example

- Desired spending: $85,000

- Expected other income: $30,000

- Portfolio need: $55,000

- Target nest egg (25x): $1,375,000

- Initial withdrawal: $55,000 (about 4% of target)

If worried about low returns, you might use 28x: target rises to $1,540,000, offering a larger safety margin with the same $55,000 draw.

Action Steps

1) Draft a realistic retirement budget.

2) Subtract other income sources.

3) Multiply the gap by 25–30 to set a range.

4) Map contributions needed each year to close that gap.

5) Revisit annually and after big life changes.

Conclusion

The multiply-by-25 rule turns a fuzzy dream into a clear savings target—and a plan you can execute. Treat it as a smart baseline, then tailor for taxes, returns, longevity, and flexibility, revisiting your assumptions as your life and markets change.