Stop thinking about a nest egg. Think about a paycheck.
People ask about a lump sum — a million dollars, two million, whatever number is in the air. But nobody spends a lump sum. You spend monthly. The real question is: when your paycheck stops, what replaces it, and will that replacement last as long as you do?
Reframing it that way makes the problem tractable, because a monthly number is something you can actually estimate from your own bank statements.
The four numbers
1. What you spend in a year. Not a budget you aspire to — what actually left your accounts over the last twelve months. Then adjust for what changes: the mortgage may end, commuting drops, health costs typically rise, travel often spikes early in retirement and fades later.
2. Income you’ll receive regardless of markets. Social Security, a pension if you have one, rental income, part-time work, an annuity if you own one. This is money arriving whether or not it’s a good year for anything.
3. The gap. Subtract number two from number one. This is the part your savings must produce. If you spend $70,000 a year and $35,000 arrives from guaranteed sources, your savings has to generate $35,000.
4. How long it must last. Not your life expectancy — that’s an average, and half of people exceed it. Plan for a long life, and for a married couple, plan for the longer of the two.
Turning the gap into a target
A common rough method: multiply the annual gap by somewhere between 25 and 33 to get a ballpark savings target. Multiplying by 25 corresponds to withdrawing about 4% a year; multiplying by 33 corresponds to about 3%.
Those multipliers come from historical studies of how portfolios survived thirty-year retirements. They are useful for orientation and they are not promises. Nobody knows the sequence of returns you will personally get, which is precisely why the number is a range and not a fact.
A $35,000 gap points somewhere between roughly $875,000 and $1.15 million. That spread is not sloppiness — it is an honest reflection of how much the assumptions matter.
Four risks that move the number
Longevity. Living a long time is wonderful and expensive. It is the risk that multiplies every other one.
Sequence of returns. A bad market in your first few years of withdrawals hurts far more than the same bad market fifteen years in, because you are selling assets while they’re down and they never fully recover. Same average return, very different outcome.
Inflation. At 3% a year, costs roughly double in about 24 years. A number that works at 65 can quietly stop working at 85.
Health and long-term care. The single largest unbudgeted expense most retirees face. Ignoring it doesn’t make the number smaller; it makes the estimate wrong.
Taxes are part of the answer
The dollars in a traditional 401(k) are not all yours. Withdrawals from pre-tax accounts are generally taxed as ordinary income, so a $1 million pre-tax balance funds less spending than $1 million in an already-taxed account.
Which tax bucket your savings sits in changes your usable income meaningfully. That is covered in how to lower your taxes in retirement, and it is a conversation for your CPA, not for me.
What to actually do this week
Pull twelve months of spending. Get your Social Security estimate from ssa.gov. Subtract. Multiply the gap by 25 and by 33 to see your range. Write all of it on one page.
That page will be imperfect and it will still be more than most people ever produce. It turns dread into a number you can work on, and it gives any professional you talk to something real to react to.
I’m a licensed insurance agent, not a CPA or an investment adviser. I can help you build that page and understand the vocabulary in it. The tax and investment decisions belong with the appropriate professional.