How much money you need to retire equals your yearly spending minus your Social Security and pension income, multiplied by a withdrawal factor. Most guides use 25 (the 4% guideline), so a $1,411 monthly gap points to about $423,000. Your own number depends on three things: what you spend, what guaranteed income covers, and where you live.
Searches for a magic number usually return $1 million, $1.5 million or "70 to 80% of your income." Those are rules of thumb, and they can mislead. A couple in a paid-off house in Tennessee and a single renter in coastal California can retire on very different amounts and both be fine. I'd rather start from what you actually spend, so that's how this guide works.
The gap method: spending minus guaranteed income
Start with what you will actually spend each month in retirement. The retirement budget worksheet lists every line a retiree pays, including Medicare and taxes. Then subtract the income that arrives no matter what the markets do: Social Security, a pension, an annuity you already own. What is left is the gap, and your savings (401(k), IRA, brokerage accounts) must fill it.
- Monthly spending in retirement, with taxes and health costs included.
- Minus monthly Social Security and pensions.
- Equals the monthly gap. Multiply by 12 for the yearly gap.
- Divide the yearly gap by a withdrawal rate (4% is the best-known) or multiply by 25. That is a rough savings target.
This reverses the usual method. Instead of picking a savings goal and hoping it lasts, you price the life you want and measure the shortfall. If the gap is zero, you need no portfolio withdrawals at all. If you can cut the gap by $500 a month, the savings target falls by $150,000 under the 4% guideline.
What Social Security covers
The Social Security Administration's Monthly Statistical Snapshot for September 2026 puts the average retired-worker benefit at $2,088.79 a month, about $25,065 a year. We round to $2,089 below. That is an average across everyone, including people who claimed at 62 and people who earned little. Your own benefit comes from your earnings record and your claiming age, and you can see your estimate in a my Social Security account.
Two cautions. First, Social Security replaces only part of a working income, so most people need savings or a pension on top. Second, the benefit is paid per worker, so a couple with two work records can have two checks, while a couple with one record may have a spouse benefit that is smaller than a second full check. Check your own numbers on ssa.gov before you plug in the average.
The worked table: four spending levels
The table below uses one retired worker receiving the average benefit of $2,089 a month. The savings columns show the portfolio needed to cover the gap at a 4% withdrawal (25 times the yearly gap) and at a more cautious 3.5%. The figures are before income tax on withdrawals, and they are examples, not a forecast.
| Monthly spending | Minus Social Security | Monthly gap | Yearly gap | Savings needed at 4% | Savings needed at 3.5% |
|---|---|---|---|---|---|
| $2,500 | $2,089 | $411 | $4,932 | about $123,000 | about $141,000 |
| $3,500 | $2,089 | $1,411 | $16,932 | about $423,000 | about $484,000 |
| $4,500 | $2,089 | $2,411 | $28,932 | about $723,000 | about $827,000 |
| $6,000 | $2,089 | $3,911 | $46,932 | about $1,173,000 | about $1,341,000 |
For scale, the Bureau of Labor Statistics reports that households headed by someone 65 or older spent about $5,370 a month on average in 2025, according to the figures in our budget worksheet guide. That sits between the third and fourth rows, but an average hides a wide range. Households that own their home outright spend far less on shelter than renters.
The pattern to notice is the slope. Each extra $1,000 a month of spending adds about $300,000 to the savings target at 4%. That is why the cost of where you live matters more than a few points of investment return.
How a cheaper place shrinks the gap
Take the $4,500 row and move the same household to a lower-cost state. Our guide to the cheapest states to retire uses the Missouri Economic Research and Information Center (MERIC) cost of living index for the second quarter of 2026, where the US benchmark is 100. Oklahoma scores 83.0 overall and 65.1 on housing.
| Scenario | Monthly spending | Monthly gap | Savings needed at 4% | Difference |
|---|---|---|---|---|
| Baseline at the national benchmark | $4,500 | $2,411 | about $723,000 | none |
| Housing only moves to an index of 65 (a $1,500 housing line falls to $975) | $3,975 | $1,886 | about $566,000 | about $157,000 less |
| Whole budget moves to an index of 83 | $3,735 | $1,646 | about $494,000 | about $230,000 less |
The second row is the more realistic one. Groceries, insurance and Medicare premiums do not shrink much when you move, but shelter does. The third row is an upper bound, since few households see every line fall by the same percentage. Our own arithmetic here is illustrative: the $1,500 housing line is an assumption, and your real savings depend on the house or apartment you would actually buy or rent. For the cheapest towns inside those states, see the cheapest places to retire in the US.
Property tax and sales tax also move the gap, and they vary by county. Alabama and West Virginia have low property taxes, for example, while Nebraska and Iowa have high ones. The state guide has the rates side by side.
Abroad, the same logic applies at a larger scale. Spending goes down, so the gap and the target go down. The trade is visas, health care access and the paperwork of living in another country. Whether and how Social Security reaches you abroad is covered in how to collect Social Security abroad, and the country comparisons start with the best countries to retire on $2,000 a month.
The rules of thumb, with their origins and limits
Three shortcuts dominate this search. They are useful for a first estimate and risky as a plan.
The 4% guideline
Planner William Bengen's 1994 research tested retirements against US market history and found that a first-year withdrawal of about 4% of the portfolio, raised each year for inflation, survived every rolling 30-year period he tested. The 1998 Trinity study popularized the idea. Bengen has said "4%" was a simplification of a historical maximum near 4.15%, and his 2025 book argues for a higher figure of about 4.7% using a more diversified portfolio.
The limits are real. It assumes a 30-year retirement, and many people retire earlier or live longer. It rests on past returns. Morningstar's forward-looking research, which accounts for today's bond yields, has put the starting rate for a 30-year retirement in the high 3% range for recent years and lower for 35 years. It also ignores taxes and assumes you never change your spending, which almost nobody does. Treat 4% as a rough benchmark.
25 times your spending
This is the 4% rule turned upside down: 1 divided by 0.04 is 25. If you spend $40,000 a year from savings, 25 times that is $1 million. The gap method above applies it to the gap rather than to all spending, which is why it asks for far less when Social Security covers a large share. People sometimes apply 25x to total spending and forget the benefit, which overstates the need.
Replace 70 to 80 percent of your income
This target comes from the pension world, where benefits were stated as a share of final salary. It is an income measure, not a spending measure, and analysts have criticized applying it to spending. It also drifts with income: lower earners often need a higher share and higher earners a lower share, because Social Security replaces more of a modest paycheck. The figure ignores your actual life. Someone who paid off the house and stopped commuting may need much less, and someone who plans to travel may need more.
Costs that move the number
- Medicare. The standard Part B premium is $202.90 a month in 2026, according to the Centers for Medicare & Medicaid Services, and higher earners pay more. Drug and supplemental plans add to it. Our glossary entry on Medicare Part B explains what it covers. Medicare premiums are usually taken out of your Social Security check, so the benefit you spend can be smaller than the benefit you were quoted.
- Taxes. Withdrawals from traditional accounts count as income, and part of Social Security can be taxed. Some states tax Social Security and many do not, which is covered in states that don't tax Social Security.
- Housing. Owning outright, renting and carrying a mortgage are three different budgets.
- Long-term care. Most averages leave out a late-life care event, which can be large. A fee-only planner can help you decide how to plan for it.
- Inflation. The 4% guideline raises your withdrawal every year. Your Social Security benefit also gets a cost-of-living adjustment, which helps the gap stay steady.
Ways to lower the number without lowering the life
- Shrink the spending line before the savings line. A $300 monthly cut is worth about $90,000 of savings under the 4% guideline.
- Compare places by the gap, not by the ranking. A town can rank well and still cost more than your budget. Run each candidate through the same table above. Our cost of living comparison guide shows how.
- Claim with the gap in mind. A higher monthly benefit later shrinks the gap for life. The claiming rules are explained in the Social Security glossary entries, and ssa.gov has the exact amounts for your record.
- Test the plan in a lower-cost scenario and a higher-cost one. If the plan breaks in the worse case, you have found the risk while there is time to adjust.
This page is general information, not personal financial, tax or legal advice. A fee-only financial planner can run your own numbers, including taxes and the order in which to draw down accounts.
Figures as of November 2026. Sources: Social Security Administration, Monthly Statistical Snapshot, September 2026 (ssa.gov/policy/docs/quickfacts/stat_snapshot); Bureau of Labor Statistics Consumer Expenditure Surveys, 2025 data; Centers for Medicare & Medicaid Services, 2026 Medicare Parts A and B premiums fact sheet; Missouri Economic Research and Information Center (meric.mo.gov), second quarter 2026; William Bengen's 1994 research and the 1998 Trinity study as described by the sources listed in our research notes. Savings figures are our own arithmetic.