How Much Do I Need to Retire? Start With What You'll Spend

Start From What You Spend Today

"How much do I need to retire?" is the most common question in financial planning. And the fastest way to answer it is to start with a number you already know: what you spend right now.

Your current annual spending is the best baseline for estimating retirement expenses. You don't need to build a budget from scratch — you need to take what you already spend and adjust it for what changes when you stop working.

For many people, retirement spending ends up surprisingly close to their current spending — some categories drop, others rise. The sections below walk through what typically changes so you can adjust your own number with confidence.

What Goes Away When You Stop Working

Some costs are directly tied to employment and disappear the day you stop:

• ↓Commuting costs — gas, tolls, parking, transit passes, car wear-and-tear from daily driving
• ↓Work-related food — lunches out, coffee runs, after-work drinks
• ↓Professional wardrobe — fewer dress clothes, dry cleaning, etc.
• ↓Payroll taxes — no FICA (Social Security + Medicare) on portfolio withdrawals
• ↓Retirement contributions — you're done saving; that 10–20% of income is no longer an expense
• ↓Childcare and education costs — if your kids are grown by the time you retire
• ↓Life insurance — often unnecessary once your portfolio replaces your income

Add up what you currently spend on these and subtract it from your baseline. For most working households, this is a meaningful reduction.

What Stays Roughly the Same

Most of your day-to-day spending doesn't change much just because you stopped working. Use your current numbers for these:

• =Groceries and household supplies — you may cook more and eat out less, but the total tends to stay flat
• =Utilities — electricity, water, internet, phone. May go up slightly if you're home more
• =Property taxes and homeowner's insurance — don't change with your employment status
• =Auto insurance — may drop slightly with lower mileage, but still a fixed cost
• =Subscriptions and memberships — streaming, gym, etc.
• =Gifts, celebrations, and charitable giving — these are driven by your values, not your work status. If you currently spend on them, plan to keep spending on them

What Goes Up — or Is Brand New

These are the categories that tend to increase in retirement, or that didn't exist while you were working:

• ↑Healthcare — the biggest new cost for early retirees (see below)
• ↑Travel — you have time now. Be honest about how much you'll actually spend, not how much sounds nice
• ↑Hobbies and leisure — golf, workshops, classes, gardening, woodworking — time freedom means these often grow
• ↑Home maintenance — easy to underestimate. Roofs, HVAC, appliances, and repairs are lumpy — nothing for years, then a large bill at once
• ↑Helping family — supporting aging parents, helping adult children with weddings or down payments. Budget this if it's likely

Healthcare Deserves Its Own Section

If you retire before 65, you lose employer-sponsored health insurance and don't yet qualify for Medicare. This is the single biggest surprise in early retirement budgeting, so it's worth understanding your options.

For most early retirees, the ACA marketplace is the primary option. Unsubsidized premiums for a couple in their 50s can run $15,000–$25,000 per year depending on state, age, and plan tier. But subsidies change the picture dramatically.

Beyond premiums, budget for out-of-pocket costs: deductibles, copays, dental, and vision. Healthcare costs also tend to rise faster than general inflation, so this line item grows over time.

After 65, Medicare takes over. Premiums are lower, but you'll still pay for Part B, a supplement policy, and Part D (prescriptions). The important thing is to budget something for healthcare — it won't be zero.

A Note on Housing

Most FI plans assume your primary residence is either paid off by your FI date, or that you've set aside enough assets to cover the remaining mortgage. This is because mortgage payments are a large, fixed obligation that directly competes with your portfolio's ability to fund your lifestyle.

If your mortgage will be paid off, your housing costs drop to property taxes, insurance, and maintenance — a significant reduction. If it won't be, include the remaining payments as part of your retirement expenses. Either way, your current housing costs are a fine starting point — just adjust for which components will still be there.

The Retirement Expense Checklist

Use this as a prompt to make sure you haven't missed anything. Start with your current spending in each category, then adjust up or down based on the sections above.

Don't agonize over precision. The goal is a thoughtful estimate, not a forecast accurate to the dollar. If you're within 10% of reality, you're doing well — and you can always adjust as you learn more.

From Expenses to FI Number

Once you have your annual expense estimate, the next question is: how large does my portfolio need to be to safely generate that income for life? That portfolio target is your FI number — and calculating it accurately is harder than it sounds.

Your FI number depends on several factors beyond just your expenses:

• Withdrawal rate: How much you draw from your portfolio each year determines how long it lasts. A lower rate means a bigger portfolio but more safety margin. See The 4% Rule.
• Taxes: Withdrawals from Traditional 401(k)s and IRAs are taxed as income. Your account mix affects how much you need to withdraw to net your target spending. See Roth vs Traditional and Account Tax Treatment.
• Inflation: Your expenses won't stay fixed. The further out your FI date, the more this matters. See Inflation Makes FI a Moving Target.
• Debts: Outstanding debts like a mortgage or student loans need to be paid off by your FI date, or you need assets set aside to cover them — separate from the portfolio funding your living expenses.

Each of these shifts your FI number. Getting your expense estimate right is the foundation — but calculating the rest is exactly what a planning tool is for.

How MoneyOnFIRE Handles the Rest

Your job is to estimate your retirement expenses — the part only you can answer. MoneyOnFIRE takes that input and works out everything else: the withdrawal rate, inflation adjustments, taxes across account types, debt payoff, college goals, and state-specific tax rules — all in a month-by-month simulation that gives you a personalized FI date and portfolio target.

Start with your best expense estimate. The planner will do the rest.