For years, the Rule of 25 gave retirement savers an easy target: multiply annual spending by 25 and call that the portfolio needed to support a 4% first-year withdrawal.
The problem is that retirement length, market conditions, guaranteed income, taxes, and your willingness to cut spending can move that target enough to change a retirement decision.
For 2026, the better answer is not one magic replacement. A conventional 30-year, inflation-adjusted plan points to roughly 26× portfolio-funded spending under Morningstar’s current base case, while 35- to 40-year plans can push the number closer to 29× or 30×.
Why the Rule of 25 Became So Popular
The Rule of 25 is really the 4% rule written backward. If a retiree plans to withdraw 4% of a portfolio during the first year, the portfolio needs to equal 25 times that first year’s withdrawal because 1 divided by 0.04 equals 25.
A retiree who needs $40,000 from investments would therefore aim for $1 million. Under the traditional method, the retiree does not simply withdraw 4% of the changing account balance each year; the initial dollar withdrawal is generally increased afterward for inflation.
Bill Bengen’s original work used essentially this approach, although his original figure was approximately 4.15%, rather than a claim that every retiree should automatically use exactly 4%.
That distinction matters because the popular version gradually became simpler than the underlying research. It began sounding as though reaching 25× spending meant someone was officially ready to retire, when the research never established such a universal test.
Here is the mathematical relationship between withdrawal rates and savings targets.
| Starting Withdrawal Rate | Savings Multiple | Portfolio Needed for $40,000 |
|---|---|---|
| 5.0% | 20× | $800,000 |
| 4.7% | 21.3× | $851,000 |
| 4.0% | 25× | $1,000,000 |
| 3.9% | 25.6× | $1,026,000 |
| 3.5% | 28.6× | $1,143,000 |
| 3.3% | 30.3× | $1,212,000 |
A small change in withdrawal rate can therefore mean a surprisingly large change in the portfolio target. Moving from 4% to 3.3%, for example, raises the savings target for a $40,000 portfolio income need by more than $200,000.
The Closest 2026 Replacement for the Rule of 25 Is About 26×
Morningstar’s current U.S. retirement-income research puts its base-case starting withdrawal rate at 3.9% for someone seeking steady inflation-adjusted withdrawals over a 30-year period with a 90% probability of having money remaining at the end.
Social Security and other nonportfolio income are excluded from that withdrawal calculation.
Turn 3.9% around and the savings multiple is approximately 25.64. In practical planning language, that means the old 25× benchmark becomes roughly 26× annual portfolio-funded spending, not 30× and certainly not some radically larger number.
Suppose your investments must produce $50,000 during your first retirement year. The Rule of 25 produces a target of $1.25 million, while 25.64× produces about $1.282 million.
That is a $32,000 difference. It matters, but it does not mean someone at 25× has suddenly fallen far short of retirement.
A Longer Retirement Can Push the Target Toward 30×
The bigger change appears when retirement may last considerably longer than 30 years. Morningstar’s research estimates a 3.5% starting rate for a 35-year horizon and 3.3% for a 40-year horizon in the scenario it studied, using a 40% stock and 60% fixed-income portfolio with a 90% probability-of-success target.
Those rates convert into very different savings multiples. Someone retiring in their late 50s may therefore need a different benchmark from someone beginning portfolio withdrawals in their late 60s.
| Planning Horizon | Starting Rate in Morningstar Example | Approximate Multiple |
|---|---|---|
| 30 years | 3.9% | 25.6× |
| 35 years | 3.5% | 28.6× |
| 40 years | 3.3% | 30.3× |
This is where 30× becomes useful. It is not the new Rule of 25 for everyone, but it can be a much more reasonable stress-test number for households facing a 40-year retirement or simply wanting more margin against longevity risk.
A 58-year-old retiring permanently has a different problem from a 70-year-old who has already delayed withdrawals for several years. Applying the same multiple to both households ignores one of the biggest variables in retirement planning: how many years the portfolio may need to provide income.
Current Research Shows Why There Cannot Be One Perfect Replacement
Morningstar is not the only organization studying withdrawals, and its 3.9% number should not be mistaken for a law. Fidelity’s May 2026 guidance still describes roughly 4% to 5% as a useful starting range, with the appropriate rate depending on retirement age, investment mix, inflation, and other factors.
Schwab’s March 2026 analysis also shows how assumptions change the result. Its suggested 30-year example for a moderate portfolio lists initial withdrawal rates of roughly 4.2% to 4.8%, depending partly on whether the retiree targets a 75% or 90% confidence level.
Schwab explicitly recommends treating withdrawal percentages as planning guidelines and reviewing spending regularly.
Then there is Bill Bengen himself. Newer research discussed by AAII puts his “Universal SAFEMAX” at 4.7% for a diversified portfolio and 30-year horizon under his historical methodology, which would imply only about 21.3× first-year withdrawals. Bengen has separately said very long retirement horizons require a lower rate.
These numbers are not necessarily contradictions. They use different assumptions, portfolio structures, methodologies, confidence targets, and definitions of what counts as a successful retirement.
Do Not Multiply Your Entire Retirement Budget by 26 or 30
One of the most expensive ways to misuse the Rule of 25 is multiplying total household spending without first subtracting dependable income. Your portfolio normally needs to cover the gap, not every dollar you spend.
Schwab makes this distinction directly. If a retiree needs $50,000 but receives $10,000 from Social Security, its withdrawal analysis says the portfolio needs to supply the remaining $40,000 rather than the entire $50,000.
Consider a hypothetical retired couple spending $84,000 per year. Suppose their combined Social Security and pension income covers $42,000, leaving investments responsible for another $42,000.
| Hypothetical Calculation | Amount | At 26× | At 30× |
|---|---|---|---|
| Annual household spending | $84,000 | — | — |
| Social Security and pension | $42,000 | — | — |
| Portfolio-funded gap | $42,000 | $1,092,000 | $1,260,000 |
| If entire budget were multiplied | $84,000 | $2,184,000 | $2,520,000 |
The difference is enormous. Using 30× total spending would produce a $2.52 million target in this example, while applying 30× only to the investment-funded gap produces $1.26 million.
This is also why two couples who spend the same amount can require dramatically different portfolios. One may have two strong Social Security benefits and a pension, while another household may depend heavily on investments.
Social Security Can Change Your Number More Than Moving From 25× to 26×
Social Security is often more important to the calculation than arguing over a few tenths of a percentage point in the withdrawal rate. The estimated average monthly retirement benefit for a retired worker was about $2,071 for January 2026, although individual benefits can be far above or below that amount.
Someone receiving $2,000 per month has roughly $24,000 of annual income that does not need to come directly from the investment portfolio. At a 26× multiple, eliminating a $24,000 portfolio income requirement reduces the corresponding portfolio target by roughly $624,000.
That does not mean everyone should delay Social Security simply to reduce a portfolio target. Claiming decisions depend on age, health, earnings history, spousal and survivor considerations, taxes, other resources, and personal needs.
The larger lesson is simpler. Calculate dependable income first, then determine how much spending must actually be funded by investments.
The First Few Retirement Years Can Hurt More Than the Average Return Suggests
A retirement portfolio does not experience the market’s “average return” in a smooth line. A large decline shortly after retirement can be especially damaging because the retiree may be selling investments while prices are depressed.
This is known as sequence-of-returns risk. Morningstar highlighted weak returns early in retirement as a major retirement shock in its 2026 coverage, while Vanguard also incorporates sequence risk into its retirement-income work.
Suppose two retirees earn the same average return over many years, but one suffers the worst years immediately after leaving work. That retiree may have to sell more shares early to fund spending, leaving fewer assets available to participate when markets eventually recover.
This is one reason a retirement target cannot be reduced to 25×, 26×, or 30× alone. Cash reserves, portfolio construction, discretionary spending, guaranteed income, and the ability to reduce withdrawals during bad markets can all influence how damaging an early downturn becomes.
Spending Flexibility May Be Worth More Than Another Few Years of Saving
The traditional 4% framework assumes spending continues rising with inflation even when markets struggle. Real households often behave differently.
A retiree may delay a major vacation, keep a car for another year, reduce gifts, or postpone a renovation after a poor market year. Those adjustments are very different from cutting groceries, housing, insurance, or medical care.
Morningstar’s 2026 research says flexible withdrawal systems can support higher starting spending than its rigid 3.9% base case. Its broader 2025 study found some flexible approaches could begin substantially higher, although the tradeoff is accepting year-to-year spending changes rather than a perfectly steady inflation-adjusted paycheck.
Vanguard’s 2026 retirement-income work makes a similar larger point: retirement planning should begin with spending needs and goals rather than assuming one portfolio balance works for everybody.
A household with $30,000 of optional travel and entertainment expenses has considerably more flexibility than one whose entire withdrawal is needed for housing, taxes, food, insurance, and healthcare. The same portfolio balance can therefore carry different levels of risk for different households.
Taxes and Fees Belong Inside Your Retirement Number
Another weakness in simple Rule of 25 calculations is treating a $50,000 withdrawal as though $50,000 automatically becomes spendable household income. Withdrawals from traditional retirement accounts may generate income taxes, and investment costs can also reduce what remains available.
Schwab’s 2026 withdrawal examples are calculated before taxes and investment-management fees. Schwab specifically notes that these expenses need to be funded from the gross withdrawal amount.
That means a household needing $60,000 of after-tax portfolio spending may need to withdraw more than $60,000. The exact gross amount depends on account type, other taxable income, deductions, state taxes, and the household’s overall tax situation.
Roth withdrawals, taxable brokerage sales, traditional IRA distributions, and cash do not all produce the same tax result. The retirement target should therefore be built around realistic gross withdrawals rather than simply multiplying an after-tax lifestyle estimate by 25.
When 25× May Be Too Low — And When It May Be Too High
The Rule of 25 is still useful as a quick checkpoint. The mistake is allowing that checkpoint to make the retirement decision by itself.
A household facing four decades of withdrawals and little spending flexibility may reasonably want substantially more margin. Another household retiring later with strong Social Security, a pension, modest fixed expenses, and the ability to adjust discretionary spending may not require 30×.
Use this test before deciding which side of 25× you fall on.
| Situation | What It Suggests | Why |
|---|---|---|
| Retirement may last 35–40 years | Consider roughly 29×–30× as a stress test | More years of withdrawals |
| Most spending is essential | Favor more margin | Spending cuts are harder |
| Strong pension or Social Security | Portfolio target may be smaller | Investments fund a smaller gap |
| Flexible travel and leisure budget | Somewhat higher withdrawals may be manageable | Spending can respond to markets |
| Heavy reliance on pretax accounts | Add tax awareness | Gross withdrawals may exceed spending |
| Large legacy goal | Favor a larger cushion | Ending balance matters |
| Shorter withdrawal horizon | 25× may be conservative | Portfolio has fewer years to fund |
This table is not a replacement for an actual retirement projection. It is a way to identify which assumptions deserve more attention before treating a savings multiple as a green light.
A Better 2026 Formula Starts With the Income Gap
For someone wanting a simple replacement for the Rule of 25, this is more useful:
Expected annual retirement spending + taxes − dependable annual income = portfolio-funded spending gap.
Then apply a planning multiple suited to the expected retirement horizon and desired margin.
For a conventional 30-year retirement with relatively steady inflation-adjusted withdrawals, approximately 26× the portfolio gap is a reasonable benchmark tied to Morningstar’s current 3.9% research.
For a 35-year plan, roughly 29× becomes a useful conservative checkpoint, while a 40-year horizon points to approximately 30× under Morningstar’s current assumptions.
This approach immediately produces a more realistic number than multiplying gross income or even total household spending. It also forces Social Security, pensions, taxes, retirement length, and the actual job of the portfolio into the calculation.
The Five-Step Retirement Number Check for 2026
A useful retirement target should survive several questions before someone leaves a paycheck behind. Start with the household budget rather than the investment statement.
Then stress-test the parts most likely to surprise you during retirement.
| Priority | What to Review | Practical Next Step |
|---|---|---|
| 1 | Real annual spending | Build a retirement budget including taxes and healthcare |
| 2 | Dependable income | Add Social Security, pensions and other reliable income |
| 3 | Portfolio gap | Subtract dependable income from required spending |
| 4 | Planning horizon | Test 30, 35 and 40 years where appropriate |
| 5 | Spending flexibility | Identify expenses that could temporarily be reduced |
After completing those steps, run more than one scenario. Seeing what happens at 26×, 29×, and 30× can be more informative than asking whether one fixed number says you are “ready.”
Someone who needs only $35,000 from investments may discover the portfolio requirement is much smaller than expected. Someone planning to retire early with $80,000 of largely unavoidable portfolio-funded spending may discover that 25× leaves less room for error than they assumed.
Do Not Replace One Retirement Rule With Another
Perhaps the biggest lesson from current research is that the Rule of 25 did not fail because researchers discovered one superior number. It fails when people treat it as a promise rather than the rough planning shortcut it always was.
Morningstar’s current 3.9% base case implies about 26× for a 30-year horizon. Schwab’s current modeling permits higher starting rates under some assumptions, Fidelity continues to discuss a 4% to 5% range, and Bengen’s expanded historical research produces still another answer.
Each result answers a slightly different question. That is exactly why declaring that every retiree should now save 30×, 28×, or 21× would repeat the same mistake that turned the original research into an oversimplified rule.
The number should come from the retirement being funded, not the other way around.
