There is no universal retirement-income number. Your target is the annual cost of the lifestyle you want, minus dependable income such as Social Security and pensions. Savings withdrawals, work, rental income or spending changes must cover the remaining gap. A percentage of your salary can provide a quick check, but only a household-specific budget can answer “How much retirement income do I need?”
The evidence discussed here is U.S.-focused. Your result depends on household size, location, taxes, retirement date, health, housing, expected benefits and how long your money must last.
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Define the lifestyle your income must fund
Begin with spending, not a replacement-rate slogan. List what you expect to spend in retirement by month and by year, then separate essentials from choices. Retirement can lower some bills while increasing others, and many households spend more on travel, hobbies or family support during their early retirement years than they did while working.
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- Housing: mortgage or rent, property tax, insurance, utilities, repairs, furnishings and any planned move.
- Transportation: car payments, fuel, maintenance, insurance, public transit and travel that replaces a work commute.
- Food and household costs: groceries, dining out, clothing and personal services.
- Health care: premiums, deductibles, prescriptions, dental and vision care, and out-of-pocket treatment.
- Long-term care: possible home-care, assisted-living or nursing-care costs. Standard health insurance generally does not cover these expenses.
- Leisure: trips, recreation, clubs, hobbies, entertainment and gifts.
- Family and other support: help for children or relatives, charitable giving and education assistance.
- Taxes: federal, state and local taxes on benefits, pension payments, withdrawals and other income.
Adjust today’s spending instead of copying it
Start with your actual current spending records. Remove or reduce costs that are likely to stop, such as retirement-plan contributions, payroll taxes tied to employment and commuting. Add costs that may rise or begin, especially medical care, long-term care, travel and support for family members. A paid-off mortgage can lower the target; relocating to a higher-cost area can raise it.
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Model spending by phase when your plans call for it. The first retirement years may include more travel, while later years may shift toward health and care costs. A single flat percentage cannot capture those changes.
What a replacement rate tells you—and what it cannot
A replacement rate expresses retirement income as a percentage of a defined measure of preretirement earnings. The calculation is a ratio, not a dollar target:
Replacement rate = retirement income ÷ defined preretirement earnings × 100
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The denominator must be explicit. Gross final salary, average earnings, indexed lifetime earnings and after-tax pay produce different percentages. The Social Security Administration has noted that there is no consensus on the correct earnings denominator; mixing definitions can make two apparently conflicting estimates both mathematically correct.
| Figure | What the source says | How to use it |
|---|---|---|
| 65% | The Social Security Administration’s 2012 Health and Retirement Study article says this may be adequate for some households. | A lower-end illustration, not a default target. |
| 70% | The U.S. Department of Labor offers 70% of preretirement income as a quick estimate; roughly 70% is also a commonly cited total-income rule of thumb. | Use only as an initial planning check after defining income and household scope. |
| 90% or more | The same Social Security Administration article says some households may require 90% or more to maintain their desired standard of living. | More plausible when spending remains high, housing or health costs are substantial, or leisure and family support are priorities. |
| 3.9% | Morningstar’s 2025 analysis identifies a highest safe starting withdrawal rate under a 30-year retirement, inflation-adjusted spending and 90% probability-of-success assumptions. | A portfolio-withdrawal assumption only; it excludes Social Security and other nonportfolio income. |
The Social Security Administration summarizes the range this way: “For some households, a replacement ratio of 65 percent may be adequate, while others may require a replacement ratio of 90 percent or more to maintain their desired standard of living.” Lower-income households often devote a larger share of income to necessities, while higher-income households may have significant recreation and leisure spending. That difference is why the same percentage cannot serve every household.
Count each income source and its start date
After estimating spending, list income streams separately. Vanguard’s retirement-planning guidance emphasizes that anticipated income includes pensions, Social Security, rental income and earnings from investments. Record not just the amount, but when it begins and how it behaves over time.
Social Security
Use your household-specific benefit estimate and the age at which you expect to claim. Note whether the amount is inflation-adjusted, whether a spouse or survivor benefit is involved, and what happens if claiming is delayed. Do not substitute a generic percentage of salary for your actual estimate.
Pensions and annuities
Document the starting date, payment frequency, cost-of-living adjustment, survivor option and any guarantee period. A fixed payment that does not rise with inflation will buy less over a long retirement, so its real value belongs in your year-by-year plan.
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Investment and retirement-account withdrawals
Separate portfolio withdrawals from guaranteed income. The amount you can sustainably withdraw depends on the balance, investment mix, fees, taxes, market returns, inflation and the length of retirement. A withdrawal-rate study is not a promise that a particular account will deliver that income.
Rental, business and part-time income
Use net income after vacancies, repairs, insurance, taxes and management costs. For work income, specify how many years you expect to continue and whether hours or pay could change. Treat variable income conservatively unless you have a strong reason to expect it.
Calculate the amount your savings must supply
Put the budget and income inventory together using the same dollar basis—either all gross or all after tax, and all in today’s dollars or all in future dollars.
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If the result is positive, savings, continued work or another resource must fill the gap. If it is negative, your listed income exceeds the budget, but you should still test taxes, inflation, market volatility and one-time costs before treating the surplus as permanently available.
Use a year-by-year schedule
- Choose a planned retirement date and a planning horizon that reflects your health and family longevity. A 30-year horizon is the assumption in Morningstar’s 2025 withdrawal example, not a universal lifespan.
- Enter annual spending for each year, including expected changes in housing, travel and care costs.
- Enter each income source in the year it starts. Mark whether it is fixed, inflation-adjusted or dependent on investment performance.
- Subtract income from spending to show the amount that must come from savings or work each year.
- Apply taxes and inflation consistently. A nominal future-dollar income cannot be compared with a today-dollar budget.
- Stress-test the plan for an early market decline, higher medical costs, a longer life or the loss of a spouse’s income.
How the 3.9% withdrawal figure fits into the plan
Morningstar’s 2025 analysis reports a 3.9% highest safe starting withdrawal rate for a new retiree seeking consistent inflation-adjusted spending over an assumed 30-year retirement, with a 90% probability of having funds remaining. The estimate depends on Morningstar’s return and inflation assumptions and excludes Social Security and every other nonportfolio income source.
That means the figure can help translate a portfolio into a starting withdrawal amount, but it does not tell you how much total retirement income your lifestyle requires. Apply it only to the portion of your budget that the portfolio must fund. Revisit withdrawals when markets, spending, taxes or the expected horizon change.
Costs that commonly change the target
Health and long-term care
Medicare does not pay every medical bill, and ordinary health insurance typically does not cover long-term care. Include premiums, supplemental coverage, prescriptions, dental and vision expenses, deductibles and a reserve for care. Health costs can rise even when other spending falls.
Housing and location
Remaining mortgage payments, property taxes, insurance and maintenance can dominate a retirement budget. Downsizing may reduce expenses, while moving to a more expensive region, retaining two homes or renting can increase them.
Travel and recreation
Retirement may remove work-related costs but add substantial discretionary spending. List the trips, hobbies and activities you actually intend to pursue rather than assuming leisure will be negligible.
Family support and survivor needs
Helping children or relatives, paying for education or maintaining a survivor’s standard of living can require income above a simple household replacement percentage. Model the expenses and the date each obligation ends.
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When someone quotes a retirement-income percentage or withdrawal rate, check these dimensions before comparing it with your plan:
- Is preretirement income final salary, average salary or indexed lifetime earnings?
- Are figures gross or after tax?
- Does the estimate cover one person or the whole household?
- What retirement age and planning horizon are assumed?
- Are health, long-term-care, housing, travel and family-support costs included?
- How much income is guaranteed, and how much depends on markets or continued work?
- Are payments adjusted for inflation?
- Does the number represent total income needs or only withdrawals from investments?
The Social Security Administration specifically warns that denominator differences can make replacement rates appear inconsistent. A comparison is meaningful only after these definitions match.
A practical review schedule
Recalculate when a major assumption changes: your retirement date, health, housing, marital status, family obligation, expected Social Security or pension benefit, investment balance or desired lifestyle. At minimum, update the budget and income inventory annually while working and during the first years of retirement. Keep a separate reserve for one-time expenses so they do not silently distort your recurring-income target.
Bottom line for your retirement-income target
Set the target from the life you intend to live: build a detailed spending plan, subtract household-specific Social Security and other reliable income, and size savings withdrawals for the remaining gap. Treat 65%, 70% and 90%-plus replacement rates as context rather than answers, and treat Morningstar’s 3.9% figure as an assumption-bound portfolio estimate—not total retirement income and not a guarantee.
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