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Last updated: April 1, 2026 | Reviewed by AnnuityJournal Editorial Team
You’ve heard the question a thousand times: “How much do I need to retire?” The honest answer is that it depends — but that’s not an excuse to avoid doing the math. The right number is specific to you, your expenses, your income sources, and how long you plan to live.
This guide walks you through calculating your personal retirement number step by step — then shows you why a fixed annuity is the piece that locks in your income floor so the rest of your money can grow.
Step 1: Estimate Your Annual Retirement Expenses
Start with what you actually spend — not a generic formula. Pull your last 12 months of bank and credit card statements and categorize your spending. Most retirees find their expenses fall into five buckets:
- Housing: Mortgage/rent, property taxes, insurance, maintenance
- Healthcare: Premiums, out-of-pocket costs, long-term care
- Living expenses: Food, utilities, transportation, clothing
- Lifestyle: Travel, dining out, hobbies, gifts
- Debt payments: Any remaining obligations
The common rule of thumb — “you’ll spend 70–80% of your pre-retirement income” — is a rough starting point, not a plan. For most people in the 55–70 age range, actual retirement spending is closer to 85–95% of pre-retirement spending in the first decade, then drops in the mid-70s, then spikes again in the 80s due to healthcare.
For this guide, let’s use a concrete example: Carol, age 63, estimates she needs $5,500/month ($66,000/year) to maintain her current lifestyle in retirement.
Step 2: Calculate Your Guaranteed Income Sources
Guaranteed income is the foundation. Before you calculate how much savings you need, subtract what you’ll already receive reliably every month, regardless of market conditions.
Social Security
Log into SSA.gov and check your estimated benefit at your planned claiming age. Waiting from age 62 to 70 increases your benefit by roughly 77%. For most people, delaying Social Security is one of the best “investments” they can make.
Carol’s estimated Social Security benefit at age 67 (full retirement age): $2,400/month.
Pension Income
If you have a pension, note the monthly payment at your planned retirement date. Many pensions offer a survivor benefit option — factor in any cost for that coverage.
Carol has no pension.
Part-Time Work
If you plan to work part-time in early retirement, count it — but conservatively. Don’t build your plan around income that depends on your health or the job market.
Carol plans to consult part-time for $1,000/month for the first 3 years only.
Step 3: Identify the Income Gap
The income gap is the difference between what you need and what you’re guaranteed to receive. This is the number your savings must cover.
| Income Source | Monthly Amount |
|---|---|
| Monthly expenses needed | $5,500 |
| Social Security (age 67) | –$2,400 |
| Part-time consulting (years 1–3) | –$1,000 |
| Permanent income gap (after year 3) | $3,100/month |
Carol needs to generate $3,100/month — or $37,200/year — from her savings and investments on a permanent basis.
For a deeper look at this calculation, see our guide to the Retirement Income Gap.
Step 4: Apply the 4% Rule (and Its Limits)
The 4% rule, developed by financial planner William Bengen in 1994, says you can withdraw 4% of your portfolio in year one, then adjust for inflation each year, and your money should last 30 years across most historical market conditions.
To cover Carol’s $37,200/year gap using the 4% rule:
$37,200 ÷ 0.04 = $930,000
That’s Carol’s “safe portfolio number” — assuming she invests in a traditional stock/bond mix and follows the 4% withdrawal discipline.
Where the 4% Rule Falls Short
The 4% rule has real weaknesses you need to understand:
- Sequence-of-returns risk: If the market crashes in your first 3–5 years of retirement, early withdrawals can permanently deplete a portfolio even if markets recover later.
- Low interest rate environments: Some researchers now suggest 3.3% may be safer given current conditions.
- Longevity: The original study was based on a 30-year retirement. If you retire at 60 and live to 95, you need 35 years of income.
- No flexibility: You can’t cut expenses easily during a bad market if your withdrawals are covering non-discretionary costs like housing and food.
At 3.3% instead of 4%, Carol’s required portfolio jumps to $1,127,000.
Step 5: Account for Lifespan Risk
This is the risk most pre-retirees underestimate. A 65-year-old woman has a 50% chance of living past age 87 and a 25% chance of living past age 92, according to actuarial data from the Society of Actuaries. For couples, the odds that at least one partner lives past 90 are even higher.
The math problem: the longer you live, the more you need — but the 4% rule was designed for a fixed time horizon. At some point, you need income that can’t run out. That’s the role of guaranteed lifetime income.
Consider this: if Carol runs out of savings at age 88 because she lived longer than expected, her only income is $2,400/month from Social Security — a $3,100 monthly shortfall with no assets left to cover it.
Step 6: Build Your Income Floor with an Annuity
The income floor strategy solves both the sequence-of-returns problem and longevity risk in one move. The idea is simple: cover all essential expenses with guaranteed income sources so your investment portfolio is only responsible for discretionary spending and growth.
Here’s how it works for Carol:
Option A: Portfolio-Only Approach (4% Rule)
- Need $930,000–$1,127,000 in a traditional portfolio
- Exposed to market risk in early retirement
- No guarantee income lasts to age 95
Option B: Annuity Income Floor + Smaller Portfolio
Carol invests $300,000 in a fixed annuity that generates $1,500/month for life beginning at age 67. Combined with Social Security, her guaranteed income becomes $3,900/month — covering $3,100 of her gap with $800/month to spare.
Her remaining portfolio ($627,000) now only needs to cover lifestyle spending and emergencies — not the non-negotiable bills. That means she can invest more aggressively, needs a smaller total nest egg, and doesn’t panic if markets drop 30% in year two.
This approach is called the “income floor and upside portfolio” strategy. It’s endorsed by Nobel economist William Sharpe and researchers at the Stanford Center on Longevity.
Learn how to use annuities in a retirement income plan for a full breakdown of this strategy.
Putting It All Together: Your Retirement Number
There’s no single “magic number” — it’s a range that depends on how much guaranteed income you build. Here’s a simple framework:
| Strategy | Portfolio Needed | Annuity Investment | Risk Level |
|---|---|---|---|
| Portfolio-only (4% rule) | $930,000–$1.1M | $0 | Medium-High |
| Hybrid: annuity floor + portfolio | $600,000–$750,000 | $200,000–$350,000 | Low-Medium |
| Heavy annuity coverage | $300,000–$450,000 | $400,000–$600,000 | Low |
The “right” approach depends on your risk tolerance, health, pension status, and legacy goals. What’s consistent: the more guaranteed income you have, the less total savings you need and the less stress you carry in retirement.
Your Personal Retirement Calculation
Use this formula to calculate your own number:
- Estimate annual retirement expenses
- Subtract guaranteed income (Social Security + pension)
- Identify your income gap (annual)
- Divide gap by 0.04 for portfolio-only number
- Or: buy an annuity to cover part of the gap, then recalculate the smaller portfolio needed
The sooner you run these numbers — ideally 5–10 years before retirement — the more options you have to fill the gap. Waiting until retirement limits your choices.
What Annuity Rates Look Like in April 2026
One reason to revisit your retirement number right now: fixed annuity and MYGA rates remain elevated by historical standards. As of April 2026, top 5-year MYGA rates are reaching 5.65%, and fixed annuities for 3-year terms are available around 5.25%. That means the annuity income floor in Carol’s example above is more achievable than it was when rates were near zero in 2020-2021.
A $300,000 investment in a fixed annuity at current rates can generate meaningfully more guaranteed lifetime income than the same investment would have three years ago. If you’ve been putting off running these numbers, 2026 may be the year to act. See our current best annuity rates for a full comparison by product type and term.
Ready to explore annuity options? Start with our best annuities for retirement guide to see current rates and top-rated carriers.
Also helpful: When Is the Best Time to Buy an Annuity?
Frequently Asked Questions
How much money do you need to retire comfortably?
The amount varies based on your expenses, income sources, and lifespan. A common benchmark is 10–12 times your final salary, but a more accurate method is to calculate your income gap — the difference between what you need monthly and what Social Security (plus any pension) provides — then multiply that annual gap by 25 (the 4% rule). If you add a fixed annuity to cover part of the gap, your required portfolio balance drops significantly.
What is the 4% rule for retirement?
The 4% rule is a guideline suggesting retirees can withdraw 4% of their portfolio in the first year, then adjust for inflation each year, and the money should last 30 years across most historical market conditions. To find your target portfolio using this rule, divide your annual income need by 0.04. A $40,000 annual need requires a $1 million portfolio. Note that some researchers now recommend a more conservative 3.3% rate given lower expected returns.
Does Social Security count toward my retirement number?
Yes — Social Security reduces how much savings you need. To calculate its value in portfolio terms, divide your annual Social Security benefit by 0.04. A $2,400/month ($28,800/year) benefit is equivalent to having $720,000 in a portfolio using the 4% rule. That’s why delaying Social Security to age 70 can significantly reduce the total savings required to retire.
How does an annuity fit into retirement planning?
A fixed annuity converts a lump sum into a guaranteed monthly income stream — functioning like a personal pension. In the income floor strategy, you use an annuity to guarantee coverage of essential expenses (housing, food, healthcare). This removes the risk that a market downturn in early retirement will derail your plan. The rest of your savings can then be invested for growth without the pressure of funding daily expenses.
What if I don’t have $1 million saved for retirement?
You don’t necessarily need $1 million — it depends on your expenses and guaranteed income. Social Security, part-time work, downsizing, and a fixed annuity all reduce the portfolio required. If your Social Security covers $2,000/month and you need $4,000/month total, you only need to fund a $2,000/month gap — which requires a $600,000 portfolio at the 4% rule, or less if you add an annuity to cover part of the gap.
