The New Rules of Retirement

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For decades, long-term savers and retirees have relied on common rules of thumb to help motivate and guide them on the road to and through retirement. The precepts say you should aim to save 15% of your annual income, for instance, or subtract your age from 100 to determine how much of those savings to invest in stocks. Perhaps the best-known principle, the 4% rule, suggests that once you retire, you limit your initial portfolio withdrawal to 4%, then adjust the amount annually for inflation, to ensure your savings will last your lifetime.

But can 20th-century guidelines — directives developed before anyone ever heard of an iPhone, social media, the gig economy or other staples of life today — really serve the needs of savers and retirees in the more financially complex 21st century? Indeed, do general rules of thumb, no matter when they came to pass, make sense at all, given the big differences between people's personal situations and goals?

The answer is yes, many financial experts say — if you know the right way to apply these principles, update them to reflect current times and adapt them, as needed, to your individual circumstances.

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"The most accurate answer to the questions that retirement rules of thumb try to answer should always be: It depends — on your income, say, or your lifestyle or age. But in real life, that's a frustrating answer," says David Blanchett, head of retirement research at Prudential Financial. "These rules are best viewed as a starting point, a piece of guidance that gets you going in the right direction and recognizes that not every person has the time or inclination to seek out a personalized plan."

Behavioral-finance studies show that people rely on rules of thumb to provide mental shortcuts for complicated decisions they might otherwise guess at or not tackle at all. "They're easy to remember, stick with you and can provide useful benchmarks," says Christine Benz, director of personal finance and retirement planning at Morningstar and author of How to Retire.

That ease of use, though, can be a drawback as well as an advantage by overly simplifying solutions to high-stakes decisions regarding your retirement, such as how much to save and how to invest. "In an increasingly complex financial world, our rules have to evolve," says financial literacy expert Annamaria Lusardi, a senior fellow at the Stanford Institute for Economic Policy Research and director of Stanford's Initiative for Financial Decision-Making. "With something as consequential as your financial security in retirement, you need best practices that make sense for your personal situation."

No one, in fact, suggests that financial rules of thumb, whether about retirement or any other aspect of managing your money, are a substitute for a customized plan. Rather, they are just one tool in your toolbox to help you reach your goals.

With that caveat in mind, here is a look at five of the most common rules of thumb for retirement planning and how to update and personalize them in a way that will help propel you to a prosperous, satisfying post-work life.

The Rule: Aim to save 15% of your income a year.

This most basic rule of thumb, guiding how much you should save for retirement during your working years, is itself an update. For a long time, the advice was to save at least 10% of your pretax annual income. Recently, however, 15% has become the norm — a change that recognizes today's longer life expectancies require heftier savings to last through a retirement that could span 30 years or more, compared with a timeline of perhaps 20 to 25 years for previous generations.

"If you're consistently doing that, getting used to that discipline and developing that savings muscle, you're probably going to be okay once you hit retirement," says Michelle Magner, a retirement income certified professional and partner at Socium Advisors, a private client group of Northwestern Mutual in St. Louis.

The underlying assumption of this rule of thumb is that you'll be saving that 15% — a number that includes any matching contributions you may get from your employer in a 401(k) or similar workplace plan — continuously over the course of a 30- or 40-year career. Start later, as many people do, and 15% a year may not be enough.

On its website, for instance, Fidelity Investments recommends saving 15% a year, assuming you start at age 25 and keep going until 67. Start later (or retire earlier), and you need to sock away more: 18% a year if you start at age 30, Fidelity estimates, and 23% annually if you start at 35 — a lofty target that many people can't manage, given other demands on their money, from saving to buy a home to the costs of raising children.

A chocolate cake on a table with a candle and the number "15."

That's why it may be better to think of the 15% rule as an annual lifetime savings average rather than a literal yearly target. "The trajectory of savings is not smooth, because your ability to set aside money for retirement is different at different life stages," Benz says. "The floor might be 10% for people just starting out. Then look for opportunities when you can turbocharge your savings, particularly in the empty nest years, when you might be able to save a lot more than 15%."

Your income is a factor, too. Blanchett, for instance, suggests that while saving 12% to 15% is a reasonable general goal, 8% to 10% might make more sense for someone earning, perhaps, $50,000 a year, while 15% to 20% may be more appropriate for higher-income households earning, say, $200,000 a year.

Other considerations include whether you'll be eligible for a pension (you may not need to save as much) or are paying off credit card debt (you might want to save just enough to get the full match on a workplace savings plan until you whittle those balances down to zero).

Don't get discouraged if the 15% annual target seems out of reach now. Look for inflection points later on when you may be able to pump up savings — for example, if you pay off your mortgage, freeing up cash. Also, Blanchett advises, it's a good idea to get in the habit of saving one-third of any raise you receive.

"That way you get to enjoy some of the financial reward you've earned but also ensure you're always increasing the amounts you're saving for retirement."

The Rule: Subtract your age from 100 to determine how much to invest in stocks.

How you choose to invest your retirement savings is one of your most important planning decisions, with studies showing your asset mix accounts for more than 90% of the variability in your portfolio's returns. The 100-minus-your-age rule offers a handy way to figure out the most fundamental part of that asset allocation: How much of your money to invest in stocks and how much to keep in fixed-income securities.

To determine the percentage of your savings to invest in stocks and stock funds, the rule posits, simply subtract your age from the number 100. So, according to this formula, a 40-year-old should have 60% of retirement savings invested in equities, with the balance in bonds and cash, while a 60-year-old would flip the script, investing 40% in stocks and keeping the remainder of the portfolio in fixed-income securities.

The general principle behind the rule is a sound one, advisers say: Your investment mix should get less risky the closer you get to retirement and after you leave the workforce, when you have to balance the need for continued growth — first to keep building your nest egg and then to outpace inflation — with the imperative to preserve enough capital to ensure your money lasts your lifetime. But using 100 as the anchor figure, experts say, will probably produce too conservative a mix.

"At a high level conceptually, it's a good rule, since when you're younger, with more time to ride out market downturns, you can afford to take more risk to earn higher returns in stocks," says certified financial planner Lee Baker, president of Claris Financial Advisors in Atlanta. "But 110 or 120 is a better anchor number in the equation given today's longer life spans, which probably add five to 10 years to your investing horizon."

It's also a good idea, advisers say, to set a floor for the percentage of your savings held in stocks — say, between 30% and 40% — so your portfolio continues to generate enough growth to outpace inflation.

"Otherwise, if you continue to follow the age-based allocation path later in retirement, you may eventually have a hard time sustaining your desired level of spending from investments," says Wade Pfau, author of Retirement Planning Guidebook and a professor at The American College of Financial Services.

That's the approach typically taken by target-date funds, which automatically adjust their asset allocation to become more conservative as investors get closer to their desired year of retirement. Fidelity, T. Rowe Price and Vanguard, for instance, typically keep a minimum of at least 30% in stocks in their target-date series.

A solid alternative to the rule: Use the mix of investments that target-date fund providers put together for various ages as a guide, either by checking the asset-allocation glide paths spelled out in the funds' prospectuses or fact sheets or by investing in a fund directly.

That way, you'll get not only an allocation devised by professionals but also a more finely tuned asset mix that includes international as well as U.S. stocks and bonds, Treasury inflation-protected securities, and other assets.

Also consider how to adapt any of these investment-mix formulas to your particular circumstances — your personal tolerance for risk, for example, or whether you'll have other sources of income in retirement. "A college professor, say, with a nice pension can afford to be more aggressive with investments, depending on their risk tolerance, because they're not as dependent on the portfolio for living expenses," says Benz. "That's particularly true if they're interested in building up a legacy for heirs."

The Rule: You need to save 10 times your salary by the time you retire.

The "magic number" that Americans believe they need to retire comfortably is $1.26 million, according to a 2025 survey by Northwestern Mutual. But, of course, your personal savings target shouldn't be an arbitrary amount but rather a function of your circumstances, from how much you'll spend once you stop working to how long you'll need your money to last.

The challenge is that those factors can be tough to figure out, especially early in your career, so many financial services firms have developed guidelines, based on age and income, to help individuals estimate how much they need to save and track their progress along the way.

Fidelity's published guidelines, for instance, suggest you should aim to save three times your salary by age 40, six times by 50 and 10 times by 67, the age at which anyone born in 1960 or later can collect full Social Security benefits. T. Rowe Price gives a range of targets by age, with a midpoint of two times salary at 40, five times at 50 and 11 times at 65.

"We don't pretend this suits every circumstance or is what everyone should aim for," says CFP Roger Young, thought leadership director at T. Rowe Price. "But the guidelines are a reasonable first pass to help people figure out how much they need to save, and then we hope they'll dive deeper as they get closer to retirement."

The benchmarks are directionally sound, advisers say, and it is important to track your savings efforts against a goal. "People need something to anchor on to see how they're doing," says Benz, of Morningstar.

But she also worries the benchmarks could be discouraging for savers who are far off the mark. Only three in 10 baby boomers in the Northwestern Mutual survey, for instance, have saved at least 10 times their income for retirement, and just 32% of Gen Xers (ages 45 to 60 in 2025), have socked away at least five times their salary. "The benchmark could be demoralizing for some people and prompt inaction," Benz says. "It's always better to save something, whatever you can, than give up."

The number 10 outlined in glowing blue and pink neon against a black background.

Measuring progress in a straight line against age-and-salary markers also may not work for everyone in today's job market, Baker says. "A linear career path, where people get a stable job out of college, and steady raises at a predictable rate, seems like the path of a bygone era," he says. "Today, there's a lot more job hopping, salaries bounce up and down, and the gig economy is a real thing."

The key to using the benchmarks successfully, advisers say, is to understand the assumptions behind them, see how they fit — or don't fit — your situation, then modify them accordingly. T. Rowe's guidelines, for instance, assume household income grows by 5% a year to age 45, then by 3% a year; investments earn 7% a year, on average, and grow tax-deferred; the person retires at 65, then spends about 5% less a year than when they were working; and the person begins withdrawing 4% from savings, adjusted annually for inflation, to help cover expenses.

If you retire later, you'll have a pension that enables you to take less money from your portfolio, or you'll spend considerably less in retirement, you may not need to save as much as the benchmarks suggest. On the other hand, if you retire earlier and are hoping to live it up — 'round-the-world cruise, anyone? — you may need every penny.

Not coming close to the benchmarks? There is plenty you can do to course-correct, advisers say.

"If you're struggling to hit these numbers and you've got 10 or 15 years to retirement, do the best you can to pump up your savings rate now," Young says, maybe by taking advantage of catch-up contributions available to workers 50 and older or downsizing to free up cash.

"Also think through trade-offs that could help you save more or need less. Maybe you retire at 67 instead of 65, or live more simply so you cut expenses in retirement by 10% or 15%, instead of 5%. There are any number of reasonable choices people can make to regain ground."

The Rule: You'll need 80% of your preretirement income in retirement.

You can't figure out how much to save for retirement without estimating how much you'll spend once you stop working and the income you'll need to foot those bills. Hence this rule, which suggests you'll be able to maintain your lifestyle in retirement on about 80% of the income you took home before you stopped working, as expenses such as payroll taxes and commuting costs drop away and you're no longer contributing to a retirement-savings account.

"An income-replacement rate between 70% and 80% is a reasonable starting point for many households, particularly when you're younger and retirement is such a fantastic, far-off goal," says Blanchett. "As you get closer, you have a much better idea of what your actual expenses are going to be and can plan more accurately for them."

One challenge in applying the 80% rule, says Pfau: figuring out 80% of what preretirement income, exactly? "The rule assumes you have a steady salary that grows with inflation over time, but in real life, year-to-year income is more volatile than that," he says. "The overall pattern isn't steady, either. You have a lower salary in your twenties, then salaries accelerate faster than inflation, then tend to peak in your fifties and drop in your sixties.

Are you trying to replace your income just before retirement, in your peak years or a career average? That's hard to calculate for a supposedly easy rule of thumb."

The assumption that you need to save enough to maintain your current lifestyle and that spending will remain steady after you retire on an inflation-adjusted basis doesn't necessarily square with real life, either.

Blanchett has found in his research that spending often drops for many households over the course of retirement and typically follows a smile pattern, with higher expenses in the early years for travel, socializing and hobbies, less in the middle years, and then, for some retirees, higher spending in the later years for out-of-pocket health costs and long-term care.

A road sign with the number 80 in a red circle, indicating the speed limit in kilometers.

The upshot for how much you need to save? Blanchett's research, modeled on actual spending patterns over a couple's life expectancy rather than a fixed 30-year period, found that many retirees generally need about 20% less in savings than the common assumptions indicate but that there is a great deal of variability among retiree households.

The actual percentage of preretirement income needed, the study found, ranged from less than 54% to more than 87%, with the percentages typically higher for those with lower incomes and lower savings rates. Blanchett noted, "The true cost of retirement is highly personalized based on each household's unique facts and circumstances."

A study by J.P. Morgan Asset Management found a similar pattern. Households with $50,000 in annual income prior to retirement, for example, needed 89% of the money they were making to maintain their lifestyle after retirement, while those with $150,000 in preretirement income needed just 67%.

That's why advisers say that as you get close to and move into retirement, a rule of thumb is no substitute for actually trying to figure out what your expenses will be and the income you need to support that spending.

"The basic question to ask yourself is, What are you going to do with your time when you're retired?" says financial planner Stephanie McCullough, founder and CEO of Sofia Financial in Berwyn, Pa.

"If you're going to go back and forth across the country every other month to visit your grandkids and take those trips to Europe you've been dreaming about, you may spend more, at least initially, than you did before you retired. If you want to relax on the couch and watch TV, and enjoy a beer on the porch and watch the sunset in the evening, as one client recently told me, then 70% of your preretirement income should be more than enough."

The Rule: Limit your initial withdrawal to 4% of your savings, then adjust annually for inflation.

Perhaps no single rule of thumb is more widely known — or hotly debated — than this formula for how much you can safely withdraw from savings each year so you don't run out of money in retirement. Its popularity has surprised even William Bengen, the financial adviser who developed the rule, which says that if you withdraw 4% from your portfolio in the first year of retirement, then adjust the amount you take for inflation in each subsequent year, your money will last at least 30 years.

Bengen's theory about why the 4% rule caught on and remains popular with investors more than 30 years after he first wrote about it? "As human beings, we live in a very complex society, dealing with all sorts of challenges, and it's comforting to have a simple answer to a complicated problem," he says. "But as much as people would like a one-size-fits-all solution, there really isn't anything like that—the 4% rule included."

It isn't even the 4% rule anymore. Bengen updated the guideline to 4.7% in his 2025 book, A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, and continues to refine it and offer more customized variations on his website. The new higher initial safe withdrawal rate is largely driven by greater divers-ification, which increases returns, in the portfolio Bengen uses in his methodology.

Originally, it had just two investments, U.S. large-company stocks and intermediate Treasury securities. The updated mix now includes micro-, small- and mid-cap stocks, as well as international equities and cash.

Bengen continues to work on different allocations, and he believes raising the stock portion of the portfolio, from 55% in the book to 65%, would likely allow a higher safe initial withdrawal rate. His most recent research suggests an initial rate between 5.5% and 5.8%, even at today's lofty market valuations, depending on the mix of investments held.

Bengen's updates help address a key problem many experts have with the original 4% rule, which was based on a study of nearly 400 retirees under all market conditions starting from 1926 and intended to create a safe initial withdrawal rate for the worst-case scenario.

"As a withdrawal rate, it's way too low and can lead to radical underspending," Blanchett says. "Five to 6% is probably a better general rule of thumb. And it rises with age, so it might be 5% at 65 but 6% at 75."

An illustration of the number 4 in an abstract style on a yellow background.

Underspending can be as big a problem as overspending, advisers say. "I tell my clients there are two ways to fail in retirement," says Magner of Northwestern Mutual. "One is to run out of money, which is the worst. But the other is that you wake up at 85, you have this huge bucket of money, you're a lot less mobile than you used to be, and you haven't done all the things in retirement you wanted to."

There are other factors to consider in applying the withdrawal rule to your own life. Bengen assumes a retiree will stop working at 65 and that their retirement will last 30 years, and his rule doesn't account for leaving any money for loved ones to inherit.

If you retire at a younger age and need your savings to last longer, or you want to leave a legacy, your personal safe withdrawal rate would be lower than the rule suggests. On the other hand, if you keep working until you're 70, you should be able to safely withdraw more once you start.

New research by Morningstar also looks into safe withdrawal rates, but its base-case methodology relies on simulations of future returns for various asset mixes over a 30-year period with a 90% success rate, instead of the historical returns and worst-case scenario modeling that form the basis of Bengen's work. Benz and her fellow researchers concluded that 3.9% is the highest safe initial withdrawal rate for retirees looking for a consistent level of spending from year to year, with annual adjustments for inflation.

Critically, though, Morningstar also found that taking a more flexible approach to withdrawals allows you to bump up that safe initial withdrawal rate, in some cases to as high as 5.7%. The strategies that allow for a higher rate generally call for reducing withdrawals when the market is doing poorly and raising them when stocks are rising.

Making these sorts of adjustments, as needed, is key, advisers say. "Following the 4% rule exactly would be like playing a game of chicken where your portfolio could be plummeting toward zero but you don't blink and you never cut expenses," says Pfau. "In real life, that's not how people behave."

An older man balances on a rock on the beach, wearing jeans and a yellow long-sleeve shirt.

Baker agrees. "The original 4% rule did not allow for the variability of humans adapting to situations," he says. "You can feel comfortable starting off at a 5% withdrawal rate, or maybe even 6%, knowing that if another black swan event occurs — COVID, the Great Recession of 2008, the double-digit inflation of the 1970s — you'd pump the brakes on spending for a few years."

No matter what rules of thumb you're using, though, everyone agrees: While they can be useful guidelines, they are no substitute for personalized planning, particularly as you get closer to retirement. "If you want your retirement to be long and satisfying, don't leave it to chance or simple rules," says Stanford's Lusardi. "When you're talking about 30 years of retirement, the financial stakes are just too high."

Research shows, though, that savers will rely on rules of thumb for financial decisions, no matter what experts say, so it's important to understand them and know how to adapt them to your personal needs.

Says McCullough, "Rules of thumb serve a purpose, a helpful back-of-the-envelope calculation that serves as a grounding mechanism and a starting point for conversation. Hopefully, a deeper discussion will follow."

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

An award-winning financial journalist and editorial leader, Diane Harris is currently deputy editor of Kiplinger Personal Finance, where she helps direct the magazine’s coverage of retirement, savings, taxes, credit, financial planning, family finance and other core personal finance topics.

With more than three decades of magazine and digital journalism experience, Harris is the former deputy editor of Newsweek, as well as the former editor-in-chief of Time Inc.’s Money magazine. Her work has also appeared in The New York Times, TIME magazine, AARP the Magazine and AARP.com among other publications.