The 25x Rule: How to Calculate Your Retirement Number
Understanding the 25 times rule and 4% safe withdrawal rate for retirement planning.
Key Takeaways
- 1The 25x rule: Multiply your annual expenses by 25 to get your retirement number.
- 2Based on 4% safe withdrawal rate from Trinity Study research (1998).
- 3Example: $50,000/year expenses × 25 = $1,250,000 needed to retire.
- 4Historically, 4% withdrawals survived 30-year retirements 95% of the time.
- 5Conservative early retirees use 33x (3% withdrawal) for longer timelines.
- 6Sequence of returns risk in first decade can break the 4% rule.
What Is the 25x Rule?
The **25x rule** is a simple formula for calculating how much money you need to retire: **Annual Expenses × 25 = Retirement Portfolio Needed** This rule is based on the **4% safe withdrawal rate**: if you withdraw 4% of your portfolio in the first year (then adjust for inflation), your money should last 30+ years.
- Spend $40,000/year → Need $1,000,000 ($40k × 25)
- Spend $60,000/year → Need $1,500,000 ($60k × 25)
- Spend $80,000/year → Need $2,000,000 ($80k × 25)
- The inverse: Divide portfolio by 25 to see annual safe spending
Quick Mental Math
25x is the same as dividing by 4%. To find 4% of any number, just move the decimal two places left and multiply by 4. Example: $1,000,000 → $10,000 → $40,000.
Where Does the 25x Rule Come From?
The 25x rule comes from the **Trinity Study**, published in 1998 by three professors at Trinity University. They analyzed historical stock and bond returns from 1926-1995 and asked: **"What withdrawal rate allows retirees to not run out of money over 30 years?"** Their finding: **4% withdrawals (adjusted for inflation) succeeded 95% of the time** with a 50/50 stock/bond portfolio.
- Original study: 1926-1995 market data
- Updated in 2009 with data through 2009
- 4% rule worked in 95% of 30-year periods
- Failures occurred when retirement started during major crashes (1929, 1966)
How to Calculate Your 25x Number
Follow these steps to calculate your retirement number using the 25x rule:
- 1**Track your annual expenses:** Include everything - housing, food, insurance, entertainment, travel. Don't include mortgage if it'll be paid off.
- 2**Multiply by 25:** This is your baseline retirement number.
- 3**Consider being conservative:** For early retirement (40+ year timeline), consider using 30x or 33x instead.
- 4**Adjust for inflation:** If you're retiring in 10 years, adjust your expense estimate upward.
- 5**Account for one-time expenses:** Will you buy a car every 10 years? Budget for it.
Real Calculation Example
Sarah tracks her expenses: $30k housing, $8k food, $6k insurance, $4k entertainment, $2k misc = $50k/year total. $50,000 × 25 = $1,250,000 retirement number. She could withdraw $50,000/year (4%) and historically have a 95% chance of not running out over 30 years.
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Real-World Examples of the 25x Rule
Here's how the 25x rule works at different spending levels:
| Annual Expenses | 25x Needed | 4% Annual Withdrawal | Timeline at 50% Savings Rate |
|---|---|---|---|
| $30,000 | $750,000 | $30,000 | ~13 years |
| $40,000 | $1,000,000 | $40,000 | ~13 years |
| $50,000 | $1,250,000 | $50,000 | ~13 years |
| $60,000 | $1,500,000 | $60,000 | ~13 years |
| $80,000 | $2,000,000 | $80,000 | ~13 years |
| $100,000 | $2,500,000 | $100,000 | ~13 years |
Why Same Timeline?
Notice the timeline is similar regardless of expenses? That's because savings RATE (not amount) determines how fast you reach 25x. A 50% savings rate takes ~13 years whether you earn $80k or $200k.
Limitations of the 4% Rule
The 25x rule isn't perfect. Here are important limitations:
- **Based on 30-year retirements:** Early retirees (age 40-50) need 40-50 year timelines - consider 3-3.5% instead
- **Sequence of returns risk:** Retiring right before a crash (2000, 2008) broke the 4% rule for some
- **Assumes US historical returns:** Future returns may be lower
- **Doesn't account for variable spending:** Most retirees spend less as they age
- **Ignores Social Security:** Most will have additional income at 62-67
| Withdrawal Rate | Multiplier | Success Rate (30yr) | Best For |
|---|---|---|---|
| 3.0% | 33x | ~99% | Very conservative / 40+ year timeline |
| 3.5% | 28.6x | ~98% | Conservative / 35-40 year timeline |
| 4.0% | 25x | ~95% | Traditional / 30 year timeline |
| 5.0% | 20x | ~80% | Aggressive / higher risk tolerance |
When to Adjust the 25x Rule
Consider these adjustments based on your situation:
- **Early retirement (age 35-50):** Use 30x-33x (3-3.3% withdrawal)
- **High stock allocation (80%+):** Stick with 25x or be conservative
- **High bond allocation (50%+):** Could potentially use 23x-24x
- **Guaranteed income (pension):** Reduce amount needed by 25x the pension
- **Healthcare before Medicare:** Add 5-10% cushion for age 40-65 gap
Pension Adjustment Example
If you need $60,000/year but have a $20,000 pension, you only need to cover $40,000 from portfolio. $40,000 × 25 = $1,000,000 (instead of $1,500,000 without pension)
The First Decade Is Critical
The 4% rule's biggest weakness is sequence of returns risk. If you retire with $1M and markets crash 40% in year one while you withdraw $40k, you're pulling from $600k - and may never recover. This is why diversification beyond stocks/bonds matters.
Protect Your 4% Withdrawals With Gold
The 4% rule assumes diversification between stocks and bonds. But both can fall together (2022: stocks -18%, bonds -13%). Gold provides true diversification - it often rises when both stocks and bonds fall.
- 2008 crash: Stocks -37%, bonds +5%, gold +5.5%
- 1970s stagflation: Stocks flat, bonds crushed, gold +1,300%
- Zero correlation to stock/bond portfolio
- Can hold in tax-advantaged Gold IRA
- Provides buffer during sequence risk period
Frequently Asked Questions
1What is the 25x rule for retirement?
The 25x rule states that you need 25 times your annual expenses to retire safely. For example, if you spend $50,000/year, you need $1,250,000. This is based on the 4% safe withdrawal rate: 4% of $1.25M = $50,000.
2Is the 4 percent rule still valid?
The 4% rule still works as a baseline, but many experts recommend being more conservative (3-3.5%) for early retirement or if you retire during high market valuations. The rule has held up through 2024, but past performance doesn't guarantee future results.
3How do you calculate 25x your annual expenses?
Track all your annual spending (housing, food, insurance, entertainment, etc.), then multiply by 25. Example: $3,000/month = $36,000/year × 25 = $900,000 needed to retire.
4Why 25x and not 20x or 30x?
25x comes from the 4% rule based on historical market data. 20x (5% withdrawal) has much higher failure rates. 30x (3.3% withdrawal) is more conservative and better for early retirement or extended timelines. 25x balances safety with achievability.
5Does the 25x rule include Social Security?
No. The 25x rule calculates what you need from your portfolio alone. If you'll receive Social Security, you can reduce your annual expense target by that amount before multiplying by 25. Example: Need $50k/year, get $20k from SS → only need to cover $30k → $750k instead of $1.25M.
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