The rule of 25 is the fastest sanity-check in retirement planning. Multiply what you spend each year by 25 and you get the portfolio size that — historically — can sustain indefinite withdrawals at a 4% annual draw. It's not a law of nature, but it's a useful anchor that keeps millions of people pointed at an achievable target.
What changed in 2026
- Higher-for-longer rates shifted the calculus slightly. Bond yields are more competitive than in the 2010s, giving retirees more ballast in a traditional 60/40 portfolio and supporting the 4% baseline.
- Sequence-of-returns risk got more attention. After the 2022–23 correction, planners revisited whether 25x is enough for a 40-year early retirement. Consensus moved toward 28–30x for anyone retiring before 55.
- Inflation-adjusted spending became the key variable. Getting the spending estimate right matters more than refining the multiplier — garbage-in, garbage-out.
How the rule of 25 works
The math is simple: target = annual spending × 25.
If you spend $60,000 a year, your target is $1.5 million. If you spend $40,000, it's $1 million. The flip side — the 4% rule — says you can withdraw 4% of that portfolio each year (inflation-adjusted) with a historically high probability of not running out of money over 30 years, based on Trinity Study research.
Rule of 25 → how much you need to accumulate.
4% rule → how much you can safely spend each year once you have it.
They are two sides of the same coin.
What "annual spending" means here
Use your actual essential + lifestyle spending, not your income. Subtract anything that goes away in retirement (payroll taxes, savings contributions, commuting costs) and add anything that increases (healthcare, travel).
| Adjustment |
Direction |
| Remove payroll taxes, 401(k) contributions |
Subtract |
| Remove work commuting costs |
Subtract |
| Add healthcare premiums (pre-Medicare) |
Add |
| Add discretionary travel or hobbies |
Add |
| Subtract expected Social Security / pension |
Subtract |
Netting out Social Security can meaningfully reduce your target — a $20,000/year benefit reduces a $60k spend to $40k in gap, cutting your target from $1.5M to $1M.
When to use a higher multiplier
| Situation |
Adjusted multiplier |
| Standard 30-year retirement (age 65+) |
25× |
| Early retirement (age 50–64) |
28–30× |
| Very early / FIRE (before 50) |
30–33× |
| High spending variability or no pension |
28× |
| Strong Social Security / pension income |
22–25× |
The longer your retirement horizon, the more uncertainty compounds — so a bigger buffer is rational.
How to pick your number
- Track 3–6 months of real spending, not a budget you wish you had.
- Adjust for retirement-specific changes (see table above).
- Choose your multiplier based on your planned retirement age.
- Subtract guaranteed income (Social Security, pension) converted to portfolio-equivalent terms — divide the annual benefit by 0.04.
- Set it as a floor, then build in a small margin (10–15%) for planning error.
Common mistakes
Using income instead of spending. Your number should reflect what you actually spend, not what you earn. Over-saving is fine; under-saving is catastrophic.
Ignoring healthcare. Pre-Medicare healthcare can cost $15,000–$25,000/year for a couple in the US. Leaving it out understates your spending significantly.
Treating 25x as exact. The Trinity Study assumed a 50/50 to 75/25 stock/bond split and 30-year retirements. Your situation differs; treat it as a range.
Forgetting inflation on the withdrawal side. The 4% rule adjusts withdrawals for inflation each year. Spending $60k in Year 1 becomes ~$67k in Year 5 at 2% inflation.
What to skip
- Over-engineering the multiplier before you have an accurate spending baseline. A precise multiplier on a fuzzy spending number is false precision.
- Chasing a lower number by underestimating spending. This is the most common FIRE regret — running out earlier than expected.
- Ignoring sequence risk in early years. A large drawdown in years 1–3 of retirement can permanently impair a portfolio even if the long-run average return is fine.
FAQ
Is the 4% rule still valid in 2026?
Research still supports it for 30-year retirements with a diversified portfolio. For 40+ year retirements, a 3.5% withdrawal rate (equivalently, a 28–29x multiplier) is more conservative and appropriate.
Does the rule work outside the US?
The original research used US equity returns. International investors should verify against local market data, but the framework is widely used globally as a starting estimate.
Should I count my home equity?
Generally not in the portfolio target unless you plan to downsize or reverse-mortgage. It's illiquid and shouldn't be your primary drawdown asset.
What if markets are overvalued when I retire?
That's sequence risk in action. A flexible spending approach — reducing withdrawals 10–20% in bad years — dramatically improves plan survival.
Where to go next
See What is the rule of 25 in 2026, What is a Roth ladder in 2026, and How to do a Roth conversion in 2026.