How much money do I need to retire?

It depends on your spending, tax situation, and government benefits. The 25x rule (25 times your annual spending) is a rough starting point, but it ignores taxes, CPP/OAS or Social Security, and the sequence of withdrawals from different account types. A proper retirement calculator that includes tax modeling gives a much more accurate number.

Is the 4% rule still valid?

The original 4% rule assumed a 30-year retirement with a 50/50 stock-bond portfolio. For early retirees, longer horizons require a lower rate (3-3.5%). The rule also does not account for taxes, which can consume 15-30% of each withdrawal. It is a useful rule of thumb, not a planning tool.

How much should I save each month for retirement?

Financial planners commonly recommend saving 15-20% of gross income. But the right number depends on when you started, your target retirement age, and your expected spending. Someone starting at 25 needs to save less than someone starting at 40 for the same retirement outcome.

What is the biggest mistake people make when planning for retirement?

Ignoring taxes. A $1 million RRSP or Traditional IRA is not $1 million. It is $1 million minus taxes, which could be $250,000-$400,000 depending on your withdrawal strategy and province or state. Planning with pre-tax numbers significantly overstates your actual retirement spending power.

How Much Do You Need to Save for Retirement?

Retirement projection showing account balances, income, and spending over time — An Ontario couple's projected investments in today's dollars, from now to their mid-90s.

The two most quoted retirement rules, save 25 times your annual spending and withdraw 4% per year, are fine starting points and poor endpoints. They come from US historical data, assume no taxes, ignore government benefits, and use a fixed withdrawal rate that doesn’t match how retirees spend. For Canadians and Americans with real taxes, government benefits, and variable spending, the actual number is almost always different, and often more achievable than the headlines suggest.

The 25x Rule and Why It Falls Short

The 25x rule comes from a simple inversion of the 4% withdrawal rate: if you can safely withdraw 4% of your portfolio each year, you need 25 times your annual spending to be financially independent.

The logic is simple, but it breaks down for most people:

It ignores taxes entirely. If you have $1.5M in an RRSP or Traditional IRA, you don’t have $1.5M to spend — you have $1.5M minus whatever you owe in income tax on every dollar you withdraw. Depending on your province or state, that could be 25–45% of each dollar. Sizing your retirement number on gross withdrawals from registered accounts understates what you need.

It ignores government benefits. CPP and OAS in Canada or Social Security in the US reduce how much you need to pull from your portfolio. A Canadian retiree receiving $1,500/month in combined CPP and OAS ($18,000/year) needs $18,000 less in annual portfolio withdrawals. At a 4% withdrawal rate, that’s the equivalent of $450,000 in savings you don’t need.

It uses a fixed spending assumption. Research on actual retiree spending shows a “smile” pattern: spending is higher in early active retirement (travel, activities), falls in the mid-70s as activity slows, then can rise late in life for healthcare. A fixed dollar amount per year fits this poorly.

The 4% Rule: Where It Came From

The 4% rule originates from William Bengen’s 1994 research, later reinforced by the 1998 “Trinity Study” (Cooley, Hubbard, and Walz), which analyzed historical US stock and bond returns from 1926–1995 and found that a 60/40 portfolio could sustain a 4% withdrawal rate for 30 years with high probability.

Limitations:

30-year horizon only. Retire at 55 and you may need a 40–45 year portfolio. The 4% rule’s success rate drops over longer horizons.
US historical returns. US equities have outperformed global averages over this period. International portfolios may have lower expected returns.
Sequence of returns risk. A bear market in the first 5 years of retirement can permanently impair a portfolio on the 4% withdrawal schedule, even if long-run returns recover.
Inflation sensitivity. The study assumes CPI-linked spending increases. Healthcare inflation often exceeds CPI, meaning real spending can grow faster than assumed.

A 3.5% withdrawal rate is often cited as more conservative for early retirees or those with 40+ year horizons. Some researchers suggest 3.3% for maximum safety across international portfolios.

The Income Replacement Approach

A simpler framework: target replacing 70–80% of your pre-retirement income. Retirement removes several major expenses:

Mortgage payments (typically paid off by retirement)
Saving for retirement
Work-related costs (commuting, professional clothing, work lunches)
Payroll taxes in Canada and US

These adjustments can reduce required income by 20–30% relative to working years. A household spending $90,000/year while working may live comfortably on $65,000–$70,000 in retirement.

Adjust this for your situation. If you plan extensive travel in early retirement, the number may be higher. If you have paid-off property and low fixed costs, it may be lower.

Why Location Matters

Your retirement number varies a lot by province and state because taxes treat portfolio income differently:

An Ontario retiree drawing $70,000/year from an RRIF faces approximately $14,000–$16,000 in combined federal/provincial tax.
The same withdrawal in Alberta faces roughly $11,000–$13,000, a $2,000–$3,000/year difference that adds up over decades.
In Texas or Florida (no state income tax), a US retiree withdrawing $70,000 from a Traditional IRA owes only federal tax — roughly $8,500–$10,000. In California, add another $5,000–$7,000.

Location also affects CPP/OAS and Social Security amounts indirectly (QPP vs CPP differs), healthcare costs in the US, and housing costs. A retirement target calculated without province or state specifics can be off by 15–25%.

A Realistic Example

Sarah earns $80,000/year in Ontario and has no defined benefit pension. She wants to retire at 65.

Simple 25x calculation: $80,000 × 0.75 = $60,000 target spending. $60,000 × 25 = $1,500,000.

More precise calculation:

CPP at 65: $1,100/month ($13,200/year)
OAS at 65: $750/month ($9,000/year)
Portfolio withdrawal needed: $60,000 - $22,200 = $37,800/year
Pre-tax withdrawal required (accounting for Ontario tax on RRIF income): approximately $44,000–$46,000/year
At a 4% withdrawal rate: $44,000 / 0.04 = $1,100,000

The portfolio Sarah needs is about $1.1M, $400,000 less than the 25x calculation, because government benefits cover more than $22,000 of the spending need.

The exact number changes if she delays CPP and OAS to 70 (lower portfolio withdrawals needed after 70, but higher gap spending from 65 to 70), has a spouse, or holds different account types with different tax treatment.

The Gap Between 25x and Reality

Most Canadians retire on less than 25 times their spending, and many do so comfortably. Government benefits, paid-off housing, and lower expenses in retirement are real factors the 25x rule ignores. Americans get a similar effect from Social Security, which offsets a meaningful part of required portfolio withdrawals.

A better approach is a year-by-year income projection that includes your benefits, account types, and tax situation, run under several scenarios (early retirement, a bear market in year one, a long lifespan) to see where the risk is.

How cinder.fi Helps

Monte Carlo simulation showing retirement success rate across 1,000 market scenarios — Random markets: the median path, the 10–90% band, and the estate in the worst, typical and best cases.

cinder.fi builds a year-by-year retirement projection that accounts for CPP/OAS or Social Security, RRIF minimums, provincial and state taxes, and the tax treatment of each account type. Enter your savings, income, and province or state, and the planner shows your projected annual shortfall or surplus, the portfolio balance over time, and the probability of success under Monte Carlo simulation. The number it gives you is based on your tax situation, not a rule of thumb. In the US, the retirement calculator with Social Security runs this for your state.

Model this in your own plan: try cinder.fi free.

April 1, 2026 · 5 min read