Two Words Explain Why Your ‘Retirement Number’ Is Probably Wrong

Ask people how much they need to retire, and there is a good chance they can throw out a number almost instantly. Maybe it’s $1 million because that’s what they have always heard, or $2 million because some calculator somewhere told them that’s a good number.

You could also say $3 million, because it’s safer than $2 million, but it really doesn’t matter because all of these numbers sound concrete, which is what makes them dangerous. The thing is, most retirement numbers are built on an assumption so flawed that it can quietly invalidate the entire calculation. 

These two words are “spending rate,” not investment returns, not portfolio size, but the number you need in retirement is almost entirely determined by what you actually plan to spend. Most people either significantly underestimate this figure or borrow it from a generic formula that has nothing to do with their real lives. 

Where the Standard Formula Breaks Down

The 4% rule is the most widely cited framework in retirement planning, and it’s not wrong per se, it’s just not complete. The rule essentially says you can withdraw 4% of your portfolio annually and reasonably expect the money to last 30 years. So $1 million will allow for $40,000 a year, while 2% can support $80,000 in annual withdrawals, and so on. 

The problem is that the rule says nothing about whether these numbers are enough. Instead, it just tells you how long the money will last at a given withdrawal rate. If your actual spending is $120,000 a year, the 4% rule doesn’t allow for a retirement window of $1 million, it actually gives you a retirement number of $3 million. The formula is only useful once you’ve honestly solved for spending first, and most people skip that step entirely. 

The Spending Number Most People Get Wrong

There are two common mistakes people make when estimating retirement spending. The first is assuming they’ll spend less than they do now, and sometimes this is true: the mortgage is paid off, the kids are gone, the commuting costs disappear. But healthcare costs rise, travel spending often increases in early retirement, and the structural expenses of lifestyle don’t evaporate just because a paycheck does. 

The second mistake is forgetting to account for inflation over a long retirement, and someone retiring at 62 with a 25-year horizon needs to think about what their spending looks like, not just today, but in 2040 and 2045. A spending level that feels comfortable at retirement can become genuinely strained a decade in if the portfolio isn’t structured to keep pace with rising costs. 

Why the Number Feels Right Until It Isn’t

The retirement number problem is really challenging because it stays invisible for years as you save toward a goal, hit it, finally feel a sense of arrival, and then retire, only to discover in year two or three the math doesn’t work the way you assumed. By then, the options for correcting course are narrower and less comfortable than they would have been with better planning upfront. 

This is especially common among people who anchor to a round number like $1 or $2 million, without ever working backwards from actual spending. The number feels ambitious enough to be credible, so the hard question never gets asked. What does my life actually cost, and what does it cost to fund that life for 25 or 30 years? 

How to Build the Right Number Instead

The correct sequence is the reverse of how most people approach it, and you start with spending, not savings, and build a detailed picture of what your retirement actually looks like. Think about where you live, how often you travel, what healthcare will cost, what you want to leave behind, and price it out honestly. Then you have to work backwards to determine the right portfolio size you will need to fund that life at a withdrawal rate you are comfortable with. 

If you need $100,000 a year and want to use a conservative 4% withdrawal rate, your number is $2.5 million. If you want the additional cushion of 3.5% rate, it’s closer to $2.86 million. Neither of those is a generic answer, they’re your answer, built from your actual life. Ultimately, you have to remember that the retirement number isn’t a savings milestone, it’s a spending problem, and if you solve for spending first, the number will take care of itself.