The ‘Rule of 25’ Is Dead — Here’s the New Number for 2026

You saved for years, but your retirement target still feels shaky.

Maybe you multiplied your yearly expenses by 25. The answer looked clear. Yet you keep wondering whether that amount could survive a long retirement, a bad market, rising health costs, and higher taxes.

That concern makes sense.

The Rule of 25 is based on withdrawing 4% of your portfolio in the first year of retirement. Morningstar’s latest research uses a slightly lower base case rate of 3.9% for people retiring in 2026.

Its model assumes steady inflation adjusted spending, a 30 year retirement, and a 90% chance that money remains at the end.

What the Rule of 25 Was Supposed to Tell You

The Rule of 25 gives you a fast estimate of the savings needed to support retirement spending.

You first estimate the amount you need from investments each year. Then you multiply it by 25.

The math comes from a 4% starting withdrawal.

If you have $1 million, 4% gives you $40,000 during the first year. Under the classic method, you then raise that dollar amount with inflation in later years.

You do not simply withdraw 4% of the new account balance each year.

William Bengen’s original research tested withdrawals against past U.S. market returns. He studied how different starting rates performed during difficult retirement periods. His work helped form the base for what later became known as the 4% rule.

Vanguard still describes the 4% method as a common example of dollar plus inflation spending. The firm also points out that it is one of several ways to draw money from a portfolio.

The Rule of 25 was never a guarantee. It was a rough answer to a narrow question:

“How much might I need for about 30 years of inflation adjusted withdrawals?”

That is useful. But it is not a full retirement plan.

Why 25 Is No Longer the Best Number for 2026

A 4% withdrawal rate may still work in many cases. Morningstar’s 2026 estimate is only slightly below it.

The problem is the false sense of certainty.

When someone says, “I need 25 times my expenses,” several important facts are missing.

Your retirement may last more than 30 years

A person who retires at 55 could need money for 35, 40, or even more years.

Each added year creates more withdrawals. It also gives inflation more time to raise living costs.

Poor returns can arrive at the worst time

A major market drop near the start of retirement can do lasting harm.

You must sell more shares to pay bills when asset values are down. Those shares can no longer recover when the market rises.

This is called sequence of returns risk. It is one reason two retirees with the same average return can have very different results.

Spending rarely moves in a straight line

The classic rule assumes that you take a set first year amount and raise it with inflation.

Real spending is messier.

You may travel more during your first retirement years. Later, transportation and entertainment spending may fall. Health or care expenses may then rise.

Taxes take part of every withdrawal

A $50,000 withdrawal from a traditional 401(k) does not give you $50,000 to spend.

Federal and state taxes may reduce the amount that reaches your bank account. Social Security benefits may also become taxable, depending on your total income.

Your investment mix matters

A portfolio with most of its money in cash does not have the same growth outlook as a balanced stock and bond portfolio.

A stock heavy account may offer more growth, but it can also suffer larger drops. A bond heavy portfolio may feel calmer but may struggle to keep pace with inflation.

A single multiplier cannot account for all these differences.

The New Number for 2026 Is About 26

Morningstar’s base case safe starting withdrawal rate for 2026 is 3.9%. The research applies to a person seeking fairly steady inflation adjusted spending over 30 years.

To turn that rate into a savings multiplier, divide 100 by 3.9.

The result is about 25.64.

That means the updated retirement target is roughly 25.6 times the yearly amount needed from your portfolio.

You can round it to 26 for easier planning.

The difference may look small as a percentage. It feels much larger when measured in dollars.

For every $10,000 of yearly spending that must come from investments, using 26 instead of 25 adds $10,000 to your target.

Still, it would be misleading to say that 26 is safe for every person. Morningstar’s result is based on a set of market assumptions and spending rules. Future returns may be better or worse.

The useful lesson is not that 26 is a magic number.

The useful lesson is that 25 is no longer the automatic answer.

Find Your Income Gap Before You Multiply Anything

One of the biggest Rule of 25 mistakes is multiplying total spending without subtracting reliable income.

Suppose you expect to spend $72,000 per year in retirement.

You also expect:

• $34,000 from Social Security
• $8,000 from a small pension
• $5,000 from part time work

Your portfolio does not need to provide the full $72,000.

It needs to provide the gap.

Multiply the $25,000 gap by 26.

That gives a starting portfolio target of $650,000.

Multiplying the full $72,000 by 26 would produce a target of $1,872,000. That would overstate this household’s need by more than $1.2 million.

The Social Security Administration offers an online tool that estimates benefits based on your earnings history and the age when you claim. The agency notes that benefits can generally begin at 62, but starting early reduces the monthly amount.

Use your personal estimate rather than a national average.

Also check whether the income will rise with inflation. Social Security receives cost of living adjustments, while some private pensions stay flat.

Include these costs in your spending estimate

Your retirement budget should cover more than food and housing.

Add realistic amounts for:

• Federal and state income taxes
• Health insurance and Medicare premiums
• Dental, hearing, and vision care
• Home and car repairs
• Travel and hobbies
• Help for adult children or parents
• Long term care
• Portfolio fees
• Large purchases such as replacing a vehicle

Use your last 12 months of bank and credit card statements. That will usually give you a better base than guessing.

Use About 29 Times Spending for a 35 Year Retirement

A person retiring at 67 faces a different problem from someone retiring at 52.

Morningstar’s June 2026 planning research says that extending the withdrawal period from 30 to 35 years lowered its base case starting rate from 3.9% to 3.5%.

A 3.5% rate creates a multiplier of about 28.6.

Round that to 29 times the annual portfolio income needed.

For a $50,000 yearly income gap:

• A 26 times target is $1.3 million
• A 29 times target is $1.45 million

That is a $150,000 difference.

An early retiree must also plan for years before Medicare begins and, in some cases, years before retirement accounts can be accessed without added tax rules or special withdrawal plans.

Vanguard’s early retirement guidance recommends using dynamic spending and setting a ceiling and floor. The goal is to stop spending from rising too fast in good markets while avoiding painful cuts after every decline.

A longer retirement does not always mean you need exactly 29 times spending. Social Security may begin later and reduce the amount needed from investments. Spending may also fall with age.

The best method is to build the plan in stages.

Stage 1: Before Social Security

Your portfolio may need to cover most living costs.

Stage 2: After Social Security begins

Monthly benefits reduce the portfolio income gap.

Stage 3: Later retirement

Travel and entertainment costs may fall, while medical and support costs may rise.

One fixed withdrawal amount may not fit all three stages.

Flexible Spending Can Change Your Retirement Number

The 3.9% rate assumes you want fairly steady inflation adjusted spending each year.

That is a strict promise for your portfolio to keep.

A flexible plan may let you start with a higher withdrawal. But you must accept that income can fall after weak market years.

Morningstar tested several flexible methods and found starting rates as high as 5.7% for constant percentage and endowment style methods. That does not mean retirees can take 5.7% plus inflation every year. The withdrawal changes with the portfolio’s value or with a set formula.

This difference matters.

A higher starting rate sounds better. Yet flexible income can make budgeting harder.

A fixed spending plan gives you:

• More predictable income
• Easier monthly budgeting
• Less need to react to markets

Its downside is that it may require a larger starting portfolio.

A flexible spending plan gives you:

• A chance to spend more when markets are strong
• Less pressure on the portfolio after poor returns
• A lower risk of blindly increasing withdrawals during a market drop

Its downside is that optional spending may need to fall.

Vanguard’s dynamic method uses a spending floor and ceiling. The ceiling limits large raises after strong returns. The floor limits the size of cuts after poor returns.

This works best when part of your budget is optional.

You can delay a cruise or a kitchen remodel. You cannot easily delay property tax, groceries, or essential medication.

5 Adjustments That Make Your Number More Accurate

The Rule of 26 is more useful when you make these five changes.

1. Separate Basic Costs From Optional Spending

Basic costs keep your household running.

They include:

• Housing
• Food
• Utilities
• Insurance
• Taxes
• Basic transportation
• Essential health care

Optional spending includes travel, gifts, restaurant meals, hobbies, and home upgrades.

Try to cover as much of the basic budget as possible with reliable income. Social Security, pensions, and selected guaranteed income products may form part of that floor.

Your investments can then support costs that are easier to reduce during a weak market.

2. Add Taxes Before Setting the Target

You spend after tax dollars. Many retirement calculators focus on withdrawals before tax.

Suppose you need $48,000 in your bank account. If your combined effective tax rate is 15%, withdrawing exactly $48,000 will leave you short.

The type of account matters.

Traditional 401(k) and IRA withdrawals are often taxed as ordinary income. Qualified Roth withdrawals may be tax free. Brokerage account withdrawals can include principal, gains, dividends, and interest with different tax treatment.

A tax estimate can change the size of your required portfolio.

3. Plan for Health and Care Costs Separately

Regular medical spending belongs in your yearly budget.

A major long term care event is different. Adding the full possible cost to every retirement year could greatly overstate your target.

Consider a separate reserve, insurance coverage, home equity plan, or other source for large care costs.

The right choice depends on your health, family support, assets, and insurance options.

4. Match the Multiplier to Your Time Frame

Use the number that fits the length of your plan.

A simple starting guide is:

• 26 times the income gap for about 30 years
• 29 times the income gap for about 35 years
• A more detailed stress test for 40 years or longer

Do not treat these as promises.

Someone retiring very early may face decades of inflation and market risk. That person should run several return and spending cases rather than trust one multiplier.

5. Review the Plan Every Year

Your target is not frozen on retirement day.

Review it after major changes such as:

• A large market loss
• A move
• The death of a spouse
• A new health problem
• A pension starting
• Social Security beginning
• A large gift or inheritance
• A change in tax law

The IRS generally requires owners of traditional retirement accounts to begin required minimum distributions at age 73 under current rules. These withdrawals may be larger or smaller than the amount your spending plan calls for.

A yearly review helps keep withdrawals, taxes, and investments working together.

Won’t 26 Times Spending Make People Save Too Much?

It can.

A cautious multiplier may push some people to work longer than needed. It may also cause retirees to spend too little and leave more money than they planned.

That is why 26 should be treated as a starting target rather than a final answer.

You may need less if:

• Social Security covers most basic costs
• You have a pension
• You can cut spending after poor returns
• You plan to work part time
• You have rental income
• You do not plan to leave a large estate
• Much of your spending is optional

You may need more if:

• You retire early
• Your spending cannot fall
• You have high medical costs
• You support family members
• You pay high investment fees
• You hold a very cautious portfolio
• You want to leave most of the starting balance to heirs

The new number does not remove the need for judgment.

It gives you a better place to begin that judgment.

Your 10 Minute Rule of 26 Calculation

You can create a first estimate with five steps.

1. Write down your expected yearly retirement spending.
2. Add taxes, health costs, repairs, and irregular purchases.
3. Subtract Social Security, pensions, and other reliable income.
4. Multiply the remaining gap by 26.
5. Use 29 instead if your plan must cover about 35 years.

Here is a full example:

This household might use about $1.14 million as a 30 year starting target.

For a longer retirement, it might start its planning near $1.28 million.

The next step would be testing the plan with different market returns, inflation rates, retirement dates, and spending cuts.

Austin Becker

I’m Austin Becker, an advocate for living life with intention and resilience. I write for men who are actively navigating life’s major transitions, tackling the realities of reinvention and finding renewed purpose with grit and honesty. I believe that personal growth doesn’t have a deadline it’s about continuously gearing up for the chapters that matter most.
Through my work, I aim to strip away the clichés of modern manhood, offering practical, no-nonsense insights on health, mindset, and legacy for those who want to move forward with strength and clarity.