The Wrong Question
"How much do I need to retire?" sounds like the right question. It might not be.
The number you're actually trying to solve for isn't a portfolio balance. It's monthly income — specifically, reliable income that covers your essential expenses for as long as you live, regardless of market conditions.
Starting from the income you need, rather than a savings multiple, produces a more useful answer.
The 4% Rule: Useful Starting Point, Not a Guarantee
The 4% rule comes from research suggesting that withdrawing 4% of your portfolio annually (adjusted for inflation) had historically not depleted a balanced portfolio over a 30-year retirement.
It's a reasonable planning heuristic. It's also:
- Based on historical market returns that may not repeat
- Dependent on the sequence of returns in your specific retirement years
- Designed for a 30-year horizon — which may not match your situation
- Silent on spending flexibility (markets don't care about your fixed expenses)
An Income-First Approach
A more grounded framework:
Step 1: Define your essential expenses. Housing, food, utilities, healthcare, transportation. What does it actually cost to live — not comfortably, but adequately?
Step 2: Identify guaranteed income sources. Social Security. Any pension. What arrives every month regardless of markets?
Step 3: Find the gap. The difference between your essential expenses and your guaranteed income is what you need your portfolio (or annuity) to cover.
Step 4: Fund the gap durably. A portfolio withdrawal covers the gap — but runs the sequence-of-returns risk. An annuity covers the gap permanently. Most people use some combination.
Social Security Is More Valuable Than Most People Realize
Delaying Social Security from 62 to 70 increases the monthly benefit by roughly 76% for most people (the exact increase depends on your earnings record).
That additional monthly income — guaranteed for life, adjusted annually for inflation — is equivalent to a substantial amount of annuity premium. Many people underestimate how valuable the delay is because they're impatient, or because they don't expect to live long enough for it to matter.
Life expectancy at 65 is currently over 19 years for men and over 21 years for women. On a joint basis (two people), there's a very high probability at least one of you will live past 85. The math on delay usually favors waiting.
Where Annuities Fit
The primary use case for income annuities in retirement planning is closing the gap between Social Security and essential expenses — or supplementing Social Security where that gap is large.
If your essential expenses are $5,000/month and Social Security covers $3,000/month, you need $2,000/month reliably, for life. That's $24,000/year. To generate that via a portfolio withdrawal at 4%, you'd need $600,000 in liquid assets — and accept sequence-of-returns risk.
Alternatively, a portion of that $600,000 allocated to an income annuity could generate $2,000/month (or more, depending on age and product), leaving the remainder of your portfolio to grow and serve as a reserve.
That structure reduces longevity risk and allows the remaining portfolio to be invested more aggressively without threatening essential income.
The Honest Answer to "How Much Do I Need?"
It depends. Not on a formula — on your specific situation.
A couple with $4,000/month in Social Security, $2,500/month in essential expenses, and paid-off housing is in a completely different position than a single person with $1,800/month in benefits and $3,500/month in expenses.
The number that matters isn't a savings multiple. It's whether your income — from all sources — durably covers your essential expenses for as long as you live. Everything else is how you fill the gap.
Questions about your specific situation? Contact Devin for a free, no-pressure rate comparison. Licensed in multiple states. No commitment required.