Key Points
The 4% rule says retirees should be comfortable withdrawing 4% of their total savings in the first year and adjust for inflation each year afterward.
Age 70 is the latest age at which you can delay claiming Social Security benefits.
You should use the 4% rule as a starting point, not a fixed percentage that applies to everyone.
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Everyone's retirement goals look different. Some people want to travel, some want to take up a new hobby, and some want to spend as much time as possible at home. In either case, the No. 1 goal should be to be as comfortable as possible. And one of the best ways to do so is by being financially comfortable.
Many people consider retiring at age 62 because it's the earliest age at which you can claim Social Security retirement benefits. However, is it possible to retire at 62 without claiming Social Security? Let's see what the math says.
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An example of how the math could play out
The first step is figuring out how much you'll need annually to live comfortably. For this example, we'll assume $48,000 ($4,000 monthly). If you retire at 62 and delay claiming Social Security benefits until 70 (the latest age to claim), you'll need $384,000 to fund your lifestyle during that eight-year gap.
Next, you'll want to see how much you'll need after accounting for your Social Security benefits that kick in at 70. If you were to receive $2,000 in benefits, your gap between expenses and benefits would be $24,000 annually ($2,000 monthly).
If we apply the 4% rule -- which says you should be able to withdraw 4% of your retirement nest egg in your first year and adjust for inflation in the following years without outliving your savings -- then we'd multiply the gap by 25 to calculate how much total would be needed to survive in retirement. In this case, it would be $600,000.
Here's how much your total needed would differ at different Social Security and expense gaps:
| Amount of Annual Gap | Long-Term Need |
|---|---|
| $6,000 | $150,000 |
| $18,000 | $450,000 |
| $30,000 | $750,000 |
Table by the author.
Once you identify your long-term needs, add it to the amount you need between 62 and your Social Security claiming age to get your total need. In our original example, you would add $384,000 (needed between 62 and 70) to $600,000 (needed to complement Social Security), for a total of $984,000. If you apply the 4% rule to the $48,000 needed beginning at age 62, you would need $1.2 million.
Use the 4% rule as a baseline
This example assumes that the interest you earn on your retirement nest egg will at least keep pace with inflation, and the amount you need will inevitably depend on your retirement lifestyle. However, it's a practical way to gauge how much you'd need to save for a comfortable retirement.
As with most things in life, it's always better to be overprepared than underprepared, so to be safe, apply the 4% rule to your initial needs and let Social Security serve as a nice-to-have supplemental income if possible. The 4% rule is far from foolproof, but it's a good baseline to start with.
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