How Much Do I Need to Retire (or Make Work Optional)? Retirement Planning Series, Part Three
October 12, 2026 - In part one of this series, we discussed whether retirement is the right goal and why we prefer to think in terms of making work optional. In part two, we looked at retirement accounts as tax-planning tools instead of, well, retirement accounts.
The last question we will explore in our three-part retirement planning series is the most common one we hear: “How much money do I need to retire?” Or better yet, “How much money do I need to make work optional?” To be more precise, “How much net worth is needed to support my lifestyle?”
The answer depends on many variables. Rules of thumb can be useful as a quick check, but they should not be mistaken for a plan.
The 4% Rule and Its Limits
You may be familiar with the 4% rule. The 4% rule comes from financial planner William Bengen’s 1994 research, and in its simplest form, it suggests that a retiree may be able to withdraw around 4 percent of an investment portfolio each year for that portfolio to be sustainable.
For a traditional retirement scenario, it can provide a rough sense of whether someone is close to being able to “retire.” The basic test is: if you can live on 4% of your retirement account balance, plus any guaranteed income, you are in range.
This is a good tool to use as a good first check, but it is a limited view that sometimes causes families to over-withdraw or under-withdraw, or withdraw in a tax-inefficient way, when there is not a broader tax plan.
Another Simple Net Worth Retirement Planning Estimate
Another simple thumbnail can help as a first check but is very limited in its accuracy.
Take total net worth. Divide it by the number of years the money may need to last. Then divide that number by 12. Add Social Security, pensions, or other reliable income. Then compare the result with your monthly lifestyle needs.
For example, assume someone is age 60 with a $5 million net worth and wants to plan for 40 years. Five million dollars divided by 40 years equals $125,000 per year. Divided by 12, that is a little over $10,000 per month before adding Social Security, pension income, or other reliable sources.
Can you live on that amount? If so, you may be getting close to making work optional.
This calculation is intentionally crude. It ignores investment returns and losses, inflation, taxes, and the timing of withdrawals.
Why Detailed Retirement Projections Become More Valuable
The higher your net worth and tax complexity, the more important detailed planning becomes.
A detailed “making work optional” projection should look at cash flow, projected future marginal tax rates, investment returns, account withdrawals, Social Security timing, IRMAA surcharges, Roth conversion windows, required minimum distributions, charitable giving, estate goals, and stress testing.
The purpose is not to create a perfect forecast. The purpose is to make informed decisions now based on what is known now.
If you would like to have a conversation about your retirement plans, making work optional, and improving your net worth, please contact us or email me at bryan@timberchase.net.