The rule of 25 for retirement is a simple formula: multiply your expected annual retirement expenses by 25 to estimate the total savings you need.
The idea traces back to William Bengen's 1994 research and the 1998 "Trinity study" from Trinity University, which found that withdrawing 4% of a balanced portfolio each year historically allowed savings to last roughly 30 years.
The problem most people face is the opposite of complexity — they have no number at all, so they either save blindly or delay planning entirely. In this guide, you'll learn where the rule comes from, how to calculate your number, when it fails, and what to do about it.
What Is the Rule of 25?
The rule of 25 for retirement states that your nest egg should equal 25 times your yearly spending. If you need $40,000 per year from your portfolio, you need $1,000,000 saved. The math is the inverse of the 4% safe withdrawal rate: 100 divided by 4 equals 25.
The number comes from historical market research. Bengen's 1994 study and the follow-up Trinity study analyzed past stock and bond returns and found that a 4% initial withdrawal, adjusted for inflation, survived nearly every 30-year period studied. That research is now widely called the 4% rule, and it is the engine behind the rule of 25 for retirement.
How to apply this: Write down your realistic annual spending in retirement today. Multiply it by 25. That's your target savings number — update it once a year.
How to Calculate Your Retirement Number in 3 Steps
Applying the rule of 25 for retirement takes about ten minutes with three inputs:
- Estimate annual expenses. Include housing, healthcare, insurance, travel, and taxes. Most retirees spend less than working years, but healthcare often rises.
- Subtract guaranteed income. Remove Social Security, pensions, or annuities from the expense total — you only need savings to cover the gap.
- Multiply the gap by 25. That result is your savings target in today's dollars.
A common scenario: you expect $60,000 in yearly spending but will receive $24,000 from Social Security. Your gap is $36,000, so your target is $36,000 × 25 = $900,000.
Free calculators make the rule of 25 for retirement easier to run. Fidelity's retirement calculator lets you model expenses and income streams, while Vanguard's retirement income calculator estimates whether you're on track based on your savings rate.
How to apply this: Run your numbers through one of the calculators above this week, then set a monthly savings target that closes the gap.
Why the Rule of 25 Works (and Where It Comes From)
The rule of 25 for retirement is essentially a shorthand for the 4% rule. Because withdrawing 4% per year historically sustained a portfolio for 30 years, saving 25 years' worth of expenses provided a reasonable margin of safety.
The key finding came from the Trinity study — formally "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable" by Philip Cooley, Carl Hubbard, and Daniel Walz at Trinity University (1998). Their analysis of historical data concluded that a portfolio of roughly 50–75% stocks supported a 4% inflation-adjusted withdrawal across most 30-year retirement windows.
The strength of the rule of 25 for retirement is its simplicity. As Fidelity notes in its retirement planning guidance, knowing a single target number makes it far easier to track progress and stay motivated.
How to apply this: Check your current savings against 25× your expense gap to see your progress as a percentage — even a rough figure beats guessing.
When the Rule of 25 Fails
The rule of 25 for retirement is a guideline, not a guarantee, and it breaks down in several situations:
- Early retirement. The 4% rate was built for 30-year retirements. Retiring at 40 means your money may need to last 45–50 years, so many early retirees use a lower rate (3–3.5%), which requires saving closer to 30× expenses.
- Sequence-of-returns risk. A major market crash in your first years of retirement can permanently damage a portfolio that the historical averages never fully captured.
- High inflation periods. Withdrawals rise with inflation, and extended inflation stretches have stressed the 4% assumption. Morningstar's annual retirement research has suggested starting withdrawal rates closer to 3.8% in some market environments.
A practical fix is guardrails: cut spending slightly after bad market years and allow raises after good ones, rather than withdrawing a fixed amount forever. Even so, the rule of 25 for retirement remains the baseline most planners start from.
How to apply this: If you plan to retire before 60, recalculate using 30× your expense gap instead of 25×.
Rule of 25 vs. Other Retirement Rules of Thumb
No single rule fits everyone, and the rule of 25 for retirement is no exception. Here's how the most common approaches compare:
| Rule | What it does | Best for | Action to take |
|---|---|---|---|
| Rule of 25 | Savings = 25× annual expenses | First-time planners | Calculate your number today |
| 4% rule | Withdraw 4% per year | Traditional 30-year retirements | Set an initial withdrawal rate |
| 70–80% rule | Assume spending drops in retirement | Quick expense estimates | Sanity-check your budget |
| 3% rule | Withdraw 3% per year | Early or long retirements | Use if retiring before 60 |
Many planners combine rules: use the 70–80% guideline to estimate spending, then the rule of 25 for retirement to convert that into a savings target. Tools like Empower's free dashboard let you track your actual net worth against your target in one place.
How to apply this: Pick the rule that matches your retirement timeline and recheck it annually or after major life changes.
Frequently Asked Questions About rule of 25 for retirement
Does the rule of 25 include Social Security?
No — the rule of 25 for retirement applies only to expenses your portfolio must cover. Calculate your spending gap after subtracting Social Security, pensions, or rental income. If those sources cover half your expenses, your required nest egg drops dramatically, which is why two retirees with identical lifestyles can have very different targets.
Is the rule of 25 accurate for retiring at 50?
Not reliably. The original research assumed a 30-year retirement, but retiring at 50 could mean 40+ years of withdrawals. Most financial planners recommend multiplying expenses by 30–33, or using a 3–3.5% withdrawal rate, when your retirement horizon stretches beyond the assumptions behind the rule of 25 for retirement.
Should the rule of 25 use gross or net income?
Use net (after-tax) spending, because your savings must cover what you actually pay out. However, remember that withdrawals from traditional 401(k)s and IRAs are taxable, so your gross withdrawals must exceed net spending. Roth accounts avoid this gap, which changes the math for many savers applying the rule of 25 for retirement.
How does the rule of 25 for retirement handle inflation?
The rule is stated in today's dollars, so your target automatically reflects current prices. During retirement, the 4% rule adjusts withdrawals upward for inflation each year. The risk is that your savings target may need revisiting if inflation runs high between now and your retirement date — recalculate every few years.
Because the rule of 25 for retirement is stated in today's dollars, your target already reflects current prices.
What if I can't possibly save 25 times my expenses?
You have options beyond saving more. Working one or two extra years reduces both the withdrawal period and adds savings. Reducing annual expenses by $5,000 lowers your target by $125,000 under the rule of 25 for retirement. Delaying Social Security also increases guaranteed income, shrinking the portfolio-funded gap.
Conclusion: Make the Rule of 25 Your Starting Point
The rule of 25 for retirement turns an intimidating question — "how much do I need?" — into one multiplication problem.
- Your target is 25× your annual expense gap (expenses minus guaranteed income)
- It's based on the 4% rule from Bengen's 1994 research and the Trinity study
- It's a starting point, not a guarantee — early retirees should aim closer to 30×
- Recalculate annually, since expenses, income, and markets all change
The hardest step is writing down the first number. Do that today: list your expected retirement expenses, subtract guaranteed income, and multiply by 25. Then open a retirement calculator and see what monthly savings gets you there, and let the rule of 25 for retirement guide every check-in from here on.
