How Much to Save for Retirement: The 4% Rule, 401(k) & FIRE Number Explained
Your retirement number = Annual Expenses × 25. The 4% rule says you can withdraw 4% of your portfolio annually without running out of money over a 30-year retirement.
The 4% Rule: Where It Comes From
The 4% rule comes from the 1998 Trinity Study by three finance professors who backtested portfolio withdrawal rates across historical market data from 1925–1995. They found that a 4% initial withdrawal rate — adjusted for inflation annually — succeeded in sustaining a portfolio for 30 years in over 95% of historical scenarios when invested 50–75% i
401(k) and IRA Contribution Limits (2025)
Tax-advantaged retirement accounts are the most powerful tools for building wealth — the tax-deferred or tax-free compounding dramatically accelerates growth compared to taxable accounts. 401(k) limits for 2025: $23,500 employee contribution ($31,000 if age 50+ with $7,500 catch-up). Many employers match 50–100% of contributions up to 3–6% of salar
Calculating Your FIRE Number
The FIRE movement applies the 4% rule to early retirement: calculate your annual expenses in retirement, multiply by 25, and that is your financial independence number. Once your invested assets reach this figure, you can theoretically live off portfolio withdrawals indefinitely. Example: a 35-year-old spending $45,000/year needs a FIRE number of $
Why Savings Rate Determines Your Retirement Timeline
Your savings rate — the percentage of income you invest — is the single most powerful lever in retirement planning, even more than investment returns. This is because savings rate affects both sides of the equation: a higher savings rate means more invested and lower required spending (hence a lower FIRE number). Approximate years to financial inde
Frequently Asked Questions
What is the average retirement savings for Americans?
According to Vanguard's 2024 data, median 401(k) balance for Americans approaching retirement (ages 55–64) is approximately $185,000 — far below the $1M+ typically needed. The mean (average) is much higher ($537,000) due to a small number of very large balances skewing the data.
How much do I need to retire at 65 with $4,000/month income?
$4,000/month = $48,000/year. Using the 4% rule: $48,000 ÷ 0.04 = $1,200,000. Social Security partially offsets this — the average SS benefit in 2025 is approximately $1,907/month. Net spending need after SS: $2,093/month = $25,116/year → portfolio need = $628,000. Always account
Can I retire on $500,000?
At a 4% withdrawal rate, $500,000 supports $20,000/year in spending — not enough for most Americans without Social Security. With average SS benefits of ~$22,800/year, combined income reaches $42,800/year. Whether that's sufficient depends entirely on your location, lifestyle, an
Should I contribute to a Roth IRA or Traditional IRA?
The general rule: if you expect to be in a higher tax bracket in retirement, use Roth now (pay taxes at current lower rate). If you expect a lower bracket in retirement, use Traditional (defer taxes to when rates are lower). For most people early in careers, Roth is usually the b
What happens to my 401(k) if I change jobs?
You have four options: (1) Roll over to your new employer's 401(k) — simplest if the new plan has good low-cost funds. (2) Roll over to an IRA — gives you the most investment flexibility. (3) Leave it in the old plan — acceptable if you have limited investment needs. (4) Cash out