The short answer

Start with your expected annual retirement expenses. Subtract reliable income, such as Social Security, pensions, or annuities. Then divide the remaining amount by 4%, or multiply it by 25.

For example:

• Annual retirement expenses: $200,000
• Social Security and other reliable income: $60,000
• Annual portfolio-funded spending: $140,000
• Estimated portfolio using the 4% rule: $140,000 ÷ 0.04 = $3.5 million

This is only a rough planning estimate, not a guarantee or personalized recommendation. For a more realistic answer, you need to account for taxes, inflation, changing spending, healthcare, longevity, asset allocation, market volatility, and your broader financial objectives.

That is why Virtue Asset Management uses in-depth Monte Carlo analysis as part of its financial planning process. Monte Carlo analysis evaluates thousands of possible market and life outcomes to help you understand the probability of meeting your long-term spending objectives.

1. Begin with your annual retirement expenses

Your retirement number depends less on a generic age or income-based formula and more on the lifestyle you want to support.

Begin by estimating your annual spending in retirement. Consider:

• Housing costs, property taxes, and maintenance
• Health insurance, Medicare premiums, and out-of-pocket medical expenses
• Travel, dining, hobbies, and charitable giving
• Transportation and vehicle costs
• Support for children, grandchildren, or other family members
• Income taxes
• Home renovations, major purchases, or second-home expenses
• Long-term care or family support contingencies

You may spend differently in different phases of retirement. Early retirement often includes more travel and discretionary spending. Later years may involve less travel but higher healthcare or support costs.

If you live in Barrington, Oak Park, Glenview, Chicago, or a nearby suburb, your housing, property taxes, insurance, and lifestyle expenses may differ substantially from national averages. A useful estimate reflects your actual household, not a rule of thumb applied to someone else.

2. Subtract Social Security and other reliable income

Next, identify income sources that are reasonably predictable and sustainable.

These may include:

• Social Security
• Defined-benefit pensions
• Annuity income
• Rental income, if you expect it to continue
• Ongoing business income
• Contractual royalties or other recurring payments

Social Security claiming age matters. Claiming earlier may provide income sooner but generally results in a lower monthly benefit. Delaying benefits may increase your future income, but you need enough portfolio assets or other resources to support the years before benefits begin.

For a married couple, the decision also involves survivor benefits, age differences, health considerations, and the coordination of each spouse's claiming strategy.

Use your personalized Social Security estimates rather than a broad average. You should also consider whether your benefits may be taxable based on your other income.

3. Apply the basic 4% rule calculation

The traditional calculation is:

Annual retirement expenses − reliable income = annual portfolio withdrawal need

Then:

Annual portfolio withdrawal need ÷ 4% = estimated portfolio target

You can also multiply the annual portfolio withdrawal need by 25 because 1 ÷ 0.04 equals 25.

Illustrative example

Assume you and your spouse estimate that you will need $200,000 per year to support your retirement lifestyle.

You expect:

• $45,000 per year in combined Social Security
• $15,000 per year from a pension
• $140,000 per year from your investment portfolio

The calculation is:

• $200,000 annual expenses
• Less $60,000 reliable income
• Equals $140,000 portfolio-funded spending
• $140,000 × 25 = $3.5 million

Under the simplified 4% framework, you might view $3.5 million as a preliminary portfolio target.

That estimate can be helpful as a starting point. However, it does not tell you whether your specific plan is likely to work.

4. Understand what the 4% rule leaves out

The 4% rule is a planning heuristic based largely on historical market data and a particular set of assumptions. It is not a guarantee, and it is not a personalized withdrawal recommendation.

The basic calculation may not fully account for:

Taxes

A $140,000 portfolio withdrawal does not necessarily provide $140,000 of after-tax spending. Your tax result may depend on whether withdrawals come from taxable accounts, traditional retirement accounts, Roth accounts, or a combination.

Inflation

Your expenses may rise over a multi-decade retirement. Healthcare, insurance, travel, and property taxes may increase at different rates.

Changing spending

Your spending may be higher during your first years of retirement and lower later, or the reverse.

Healthcare and long-term care

Premiums, deductibles, extended care, and assistance at home can materially change your spending needs.

Longevity

A retirement plan for age 65 to age 90 is different from a plan that needs to support one or both spouses into their 90s or beyond.

Asset allocation

A portfolio invested entirely in stocks has different risks from a portfolio with a significant allocation to bonds, cash, or alternative investments.

Sequence-of-returns risk

Poor market returns early in retirement can cause greater damage than the same returns later, especially if you continue withdrawing from a declining portfolio.

Concentrated stock positions

Executives and business owners may enter retirement with significant exposure to employer stock or a single company. The 4% calculation does not address the risk of diversifying that position.

Business income or a liquidity event

A planned business sale, earnout, or irregular distribution may affect both your retirement date and your tax planning.

Legacy goals

Supporting heirs, making charitable gifts, funding trusts, or preserving assets for the next generation may require a different spending and investment strategy.

A high-net-worth household often needs to evaluate these variables together rather than rely on a single percentage.

5. Why Monte Carlo analysis provides a better planning framework

Monte Carlo analysis models many possible future outcomes instead of relying on one assumed rate of return.

In an analysis, a planning model may vary:

• Investment returns
• Inflation
• Retirement duration
• Spending levels
• Social Security claiming ages
• Asset allocation
• Tax rates and account types
• Healthcare costs
• One-time expenses
• Portfolio withdrawals
• Business or real estate income

The model then evaluates how often your plan meets its objectives across those different scenarios.

This does not produce a guaranteed answer. No model can predict the future. Instead, it helps you understand probabilities, vulnerabilities, and tradeoffs.

For example, Monte Carlo analysis may show that:

• Retiring two years later materially improves plan resilience
• Delaying Social Security reduces portfolio withdrawals later
• A flexible spending strategy improves the probability of success
• Diversifying concentrated stock is important before retirement
• Roth conversions may reduce future tax pressure
• A lower initial withdrawal rate may better support a legacy goal

At Virtue Asset Management, Monte Carlo analysis is part of our financial planning process. We use it to help you evaluate how your investment portfolio, income sources, tax strategy, and spending goals work together over time.

Our approach is not to present a single "magic number." It is to help you understand the range of outcomes and make informed decisions.

6. A practical retirement worksheet

You can begin with this framework:

Step 1: Estimate annual spending

Include both recurring expenses and a reasonable allowance for irregular costs.

Estimated annual retirement expenses: $__________

Step 2: List reliable income

Include expected Social Security, pensions, annuities, and other income.

Reliable annual income: $__________

Step 3: Calculate the portfolio-funded gap

Annual expenses − reliable income: $__________

Step 4: Apply the 4% estimate

Portfolio-funded gap × 25 = preliminary portfolio target: $__________

Step 5: Stress-test the plan

Evaluate the result using a Monte Carlo analysis that reflects your:

• Retirement age
• Desired spending
• Social Security claiming strategy
• Taxable and tax-deferred assets
• Roth assets
• Investment allocation
• Concentrated positions
• Charitable or legacy goals
• Healthcare and long-term care assumptions

For a broader planning framework, you can review Virtue's retirement planning services in Barrington and retirement income planning approach.

7. How Virtue helps you evaluate your retirement number

Your retirement plan should connect investment management with tax and estate planning.

Virtue Asset Management is a fee-only fiduciary firm. We do not receive commissions or referral fees, and our advice is designed around your interests and objectives.

Our team, led by a CFA® charterholder, helps coordinate:

• Portfolio construction
• Tax-aware withdrawals
• Social Security decisions
• Roth conversion analysis and required minimum distributions
• Concentrated stock diversification
• Business-owner liquidity planning
• Estate and charitable objectives
• Insurance and long-term care considerations

We also coordinate with your CPA and estate attorney when appropriate. This matters because your retirement decision is rarely only an investment decision.

If you are evaluating a retirement date, selling a business, exercising equity compensation, or transitioning from executive income to portfolio income, a boutique planning relationship can provide the continuity and direct access you need. You can learn more about working with a fiduciary financial advisor in Barrington or a fee-only financial planner in Barrington.

Frequently asked questions

Is the 4% rule safe for every retiree?

No. It is a rough historical guideline, not a guarantee or personalized recommendation. Your appropriate withdrawal strategy may differ based on your age, portfolio, taxes, spending flexibility, health, and goals.

Does Social Security reduce the amount I need to save?

Generally, yes. Reliable Social Security income reduces the amount your investment portfolio needs to provide. However, you should evaluate claiming age, taxation, inflation adjustments, and survivor benefits.

Is multiplying expenses by 25 enough?

It can provide a quick preliminary estimate, but it may be misleading if you do not subtract Social Security and other income first. It also does not fully account for taxes, changing expenses, healthcare, or portfolio risk.

What is a Monte Carlo success rate?

It is an estimate of how often a plan meets defined objectives across many simulated scenarios. It is not a prediction or guarantee. A lower or higher result should prompt a discussion about assumptions and possible adjustments.

How much do I need if I want to leave a legacy?

That depends on the amount you want to preserve, the timing of gifts, your heirs, taxes, charitable intentions, and your spending. Legacy planning should be integrated with investment, tax, and estate planning rather than added at the end.

Can Virtue help if I live outside Barrington?

Yes. Virtue works with high-net-worth families throughout the Chicago area, including the northern suburbs. Contact us to discuss your circumstances.

Final perspective

The 4% rule can help you begin the conversation:

Annual expenses − reliable income, multiplied by 25, provides a rough portfolio estimate.

But retirement planning requires more than a single calculation. An in-depth Monte Carlo analysis can help you see how your plan responds to different markets, taxes, spending patterns, Social Security decisions, and life events.

Virtue Asset Management uses that analysis to help you evaluate tradeoffs and build a tax-aware plan designed to support your long-term spending objectives. The result is not a promise of retirement security. It is a clearer framework for making important decisions with greater confidence.

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Disclosure

This material is provided for informational and educational purposes only and should not be construed as personalized investment, tax, legal, or accounting advice or as a recommendation to buy or sell any security or implement any specific strategy. The discussion of tax-loss harvesting, Rule 10b5-1 trading plans, exchange funds, equity collars, charitable remainder trusts, and other planning techniques is intended as a general overview and may not be appropriate for all investors. These strategies involve risks, eligibility requirements, liquidity constraints, costs, and tax implications. Tax laws and regulations are subject to change and may affect the availability or effectiveness of certain strategies.

Investment decisions should be made only after careful consideration of an investor's objectives, risk tolerance, financial circumstances, and consultation with qualified tax, legal, and financial professionals. Diversification does not ensure a profit or protect against loss in declining markets. Options strategies involve substantial risk and are not suitable for every investor.

Virtue Asset Management, LLC is a Registered Investment Adviser. Additional information about our advisory services and fees is available in our Form ADV Part 2A. Registration does not imply a certain level of skill or training. Past performance does not guarantee future results.