Calculating Your "Never Work Again" Number

Julia Carlson |
Categories
Retirement Planning
Retirement

Financial independence can become reality when working transforms from a necessity to a choice. Exactly how much money does it take to reach this coveted state? The answer isn't a universal figure—it's a personalized calculation that is based on your unique circumstances, lifestyle aspirations, and risk tolerance. To get started, let’s look at a general rule of thumb. 

The 4% Rule 

A commonly used formula in calculating your “Never Work Again” number is the 4% rule. This principle suggests that by maintaining a retirement portfolio equal to 25 times your anticipated annual expenses, you can likely withdraw 4% of your savings each year (adjusted for inflation) for at least 30 years without depleting your principal. 

Step 1: Projecting Your Retirement Expenses 

The first step in calculating your number is to realistically estimate your annual expenses in retirement. Start by analyzing your current spending habits and then thoughtfully adjust for the shifts retirement may bring: 

  • Housing: Will your costs change significantly if you've paid off your mortgage, plan to downsize, or rent? Consider property taxes, insurance, and potential maintenance costs.
  • Healthcare: Factor in potential increases in medical expenses, including insurance premiums, deductibles, and out-of-pocket costs. You may also want to consider researching potential long-term care costs.
  • Travel & Leisure: Do you envision increased spending on travel, hobbies, and entertainment? Be realistic about these aspirations.
  • Daily Living: Will you spend less on commuting, work-related attire, and lunches out? Conversely, will you spend more on home maintenance or other activities? 

While the average U.S. household spent approximately $77,280 annually in early 2025 (around $6,440 per month), remember that your individual spending will likely differ significantly based on your location, desired lifestyle, and health situation. Don't rely on averages; focus on your specifics. 

Step 2: Applying the 25x Multiplier 

Once you have a realistic estimate of your annual retirement expenses, multiply that figure by 25 to arrive at your initial "Never Work Again" number: 

  • Example 1: $40,000 annual expenses × 25 = $1,000,000 needed
  • Example 2: $60,000 annual expenses × 25 = $1,500,000 needed
  • Example 3: $100,000 annual expenses × 25 = $2,500,000 needed 

Step 3: Tailoring Your Target Number 

Several important factors can influence whether you need to adjust this initial calculation: 

  • Retirement Timeline: Planning to retire in your 40s or 50s necessitates a larger nest egg, as your savings will need to last for a potentially longer period (40-50 years or more). Conversely, if you plan to retire later (e.g., 70+), you might be able to consider a slightly higher withdrawal rate, although caution is still advised.
  • Other Income Sources: Consider guaranteed income streams like Social Security and pensions. Estimate these benefits to determine how much your investment portfolio needs to cover. Even modest income from part-time work in early retirement can significantly extend the longevity of your savings. • Risk Tolerance: The 4% rule isn't guaranteed. If you have a lower risk tolerance, you might prefer a more conservative withdrawal rate (e.g., 3.5% or 3%), which would necessitate a larger portfolio (multiply by approximately 28.5 or 33, respectively).
  • Unexpected Expenses: Life happens. Consider building an emergency fund for unforeseen medical costs, home repairs, or other unexpected events.
  • Legacy Goals: If you plan to leave an inheritance, you'll need to factor that into your calculations.
  • Tax Implications: Understand the potential tax implications of your withdrawals and consider how taxes might impact your available income in retirement. 

You may want to consider talking with a qualified financial advisor specializing in retirement planning who can provide personalized guidance, help you navigate complex scenarios, and create a tailored financial plan. 

Financial independence isn't about accumulating a specific dollar amount; it's about achieving the freedom to choose how you spend your time and energy. By diligently analyzing your individual circumstances and incorporating appropriate safety margins, you can develop a meaningful "Never Work Again" number that transforms work from a requirement to an option, allowing you to live life on your own terms. 

Julia Carlson is a registered representative with LPL Financial. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. Information in this material is for general information only and not intended as investment, tax, or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision. 

Have questions? Email us at info@financialfreedomwmg.com or call/text 458-777-4458. You may also reach us on Facebook or Instagram.