Independence Wealth | Voorhees, NJ
It’s the question I hear more than any other: How much do I actually need to retire?
The honest answer is that it depends. But there’s a framework worth understanding before you try to answer it, and knowing where it works and where it breaks down will serve you better than any rule of thumb.
The 4% Rule Explained
The 4% rule originated from a landmark 1994 study by financial planner William Bengen, who analyzed historical market returns and concluded that a retiree could withdraw 4% of their portfolio in the first year of retirement, adjust that amount for inflation each year, and have a high probability of not running out of money over a 30-year retirement.¹
The math is straightforward. If you plan to spend $80,000 per year in retirement and will receive $20,000 from Social Security, you need your portfolio to cover the remaining $60,000. Divide that by 0.04 and you get a savings target of $1.5 million.
The formula: Annual portfolio withdrawals needed ÷ 0.04 = savings target
| Annual Portfolio Withdrawal Needed | Savings Target (4% Rule) |
| $40,000 | $1,000,000 |
| $60,000 | $1,500,000 |
| $80,000 | $2,000,000 |
| $100,000 | $2,500,000 |
| $120,000 | $3,000,000 |
It’s worth noting that the savings targets above represent what your portfolio needs to cover, not your total retirement spending. Guaranteed income sources like Social Security and pensions can reduce this number dramatically. Consider a retired teacher in New Jersey with a $100,000 annual spending need who receives a $55,000 pension and $25,000 from Social Security. Their guaranteed income covers $80,000 of their expenses, leaving only $20,000 for their portfolio to fund. At a 4% withdrawal rate, that requires just $500,000 in savings, a far cry from the $2.5 million the table above might suggest at first glance. The more guaranteed income you have, the less you need saved.
Why Retiring in New Jersey Changes the Calculation
New Jersey is one of the more expensive states in which to retire. According to the Missouri Economic Research and Information Center, New Jersey consistently ranks among the highest cost-of-living states in the country.² That has real implications for how much you need saved.
A few New Jersey-specific factors worth building into your retirement plan:
Property taxes. New Jersey has the highest effective property tax rate in the nation, averaging around 2.2% of assessed home value.³ For a home assessed at $400,000, that’s $8,800 per year that needs to be factored into your retirement budget before you spend a dollar on anything else.
State income tax on retirement income. New Jersey does tax retirement income, though there are exemptions. Residents 62 or older with income below $150,000 can exclude up to $100,000 of pension and retirement income from state taxes.⁴ This makes income planning and knowing when to draw from which accounts particularly important for New Jersey retirees.
Healthcare costs. Until you reach Medicare eligibility at 65, health insurance can be a significant expense if you retire early. Depending on your income, premiums for a couple in their early 60s in New Jersey can exceed $20,000 per year.
The 4% Rule Assumes a 30-Year Retirement. What If Yours Is Shorter or Longer?
This is where the one-size-fits-all limitation of the 4% rule becomes important.
Bengen’s original research was based on a 30-year retirement horizon, roughly what you’d expect if you retired at 65 and lived to 95. If your retirement is likely to be shorter or longer, your sustainable withdrawal rate changes considerably.
According to Morningstar’s State of Retirement Income research, safe withdrawal rates adjust significantly based on how long your money needs to last:⁵
| Retirement Length | Approximate Retirement Age | Safe Withdrawal Rate |
| 40 years | ~55 | 3.3% |
| 30 years | ~65 | 4.0% |
| 25 years | ~70 | ~4.6% |
| 20 years | ~75 | ~5% |
| 15 years | ~80 | ~7% |
25-year figure interpolated from Morningstar’s published data points. All other figures sourced from Morningstar’s State of Retirement Income 2025.
In practical terms, if you’re retiring at 70 rather than 62, you need meaningfully less saved to support the same lifestyle because the money doesn’t need to last as long.
These rates assume a fixed, conservative withdrawal approach. For retirees who want to maximize spending, especially in the early, active years of retirement, a risk-based guardrails strategy can support a higher starting withdrawal rate with built-in rules to protect the long-term plan. More on that below.
What the 4% Rule Doesn’t Account For
The 4% rule is a useful starting point. It’s just not a plan.
A few things it doesn’t address:
Sequence of returns. If the market drops hard in the first few years of retirement, think 2000 or 2008, you’re withdrawing from a shrinking portfolio. Even if markets recover, the damage to your long-term picture can be permanent. This is one of the more underappreciated risks in retirement and one reason a dynamic withdrawal strategy often makes more sense than a fixed one.
You probably won’t spend the same amount every year. Spending tends to be highest early in retirement when you’re healthy and active, dips in the middle years, then can spike again late due to healthcare costs. A flat withdrawal assumption doesn’t reflect how retirement actually works.
Social Security timing matters a lot. When you and your spouse claim Social Security can shift your lifetime benefits by hundreds of thousands of dollars. That directly affects how much your portfolio needs to cover.
Taxes. The order in which you draw down accounts, IRA, Roth, taxable, has real consequences. Done well, a coordinated withdrawal strategy can meaningfully reduce what you pay in taxes over your lifetime and effectively stretch how far your savings go.
A More Practical Approach for New Jersey Retirees
Rather than working backward from a formula, here’s how I’d actually think about this:
- Figure out what you actually spend, not what you think you spend. Adjust for retirement. Don’t forget New Jersey property taxes, healthcare before Medicare, and whatever you’re actually retiring to do.
- Identify what’s coming in regardless of your portfolio. Social Security, a pension, rental income. Subtract that from your expenses first. That gap is what your investments need to cover.
- Calculate your portfolio gap. Subtract guaranteed income from estimated expenses. That number is what your portfolio needs to fund.
- Apply a withdrawal rate that matches your timeline, not a default. The table above matters. A 58-year-old and a 68-year-old should not be using the same number.
- Decide how much flexibility you’re willing to accept. A fixed withdrawal rate is simple and predictable. A guardrails strategy can allow you to spend more, especially early in retirement, but requires active management and a willingness to adjust when markets move against you.
- Stress-test it. A plan that only works if markets cooperate and you die on schedule isn’t a plan.
For Retirees Who Want to Maximize Their Lifestyle
The rates in the table above assume you withdraw a fixed amount, adjust for inflation, and stay the course regardless of what markets do. For retirees who want simplicity and predictability, that’s a reasonable approach.
But if your priority is getting the most out of retirement, particularly in the early years when you’re healthy, active, and the grandkids aren’t getting any younger, a guardrails strategy is worth understanding.
The idea is straightforward. Instead of locking into one fixed rate, you set a range. If your portfolio performs well, you have room to spend more. If it drops to a predetermined level, you pull back modestly to protect the long-term picture. Morningstar’s research shows that retirees who build this kind of flexibility in can support meaningfully higher starting withdrawals without materially increasing the risk of running out of money.⁵
The catch is that it requires ongoing monitoring and discipline. It’s not something you set up once and forget.
At Independence Wealth, managing this kind of dynamic withdrawal strategy is a core part of what we do for clients throughout South Jersey. If you want to know whether it makes sense for your situation, the conversation starts here.
Schedule a Complimentary Consultation
The Bottom Line
For most New Jersey pre-retirees, a reasonable savings target falls somewhere between $1 million and $3 million depending on your lifestyle, when you plan to retire, and how much guaranteed income you’ll have from Social Security or a pension. The 4% rule gives you a useful benchmark, but the specifics of your situation, especially in a high-cost, high-tax state like New Jersey, matter enormously.
If you’re within 10 years of retirement and want to know where you actually stand, the best thing you can do is build a plan around your numbers specifically, not a formula.
Sources
- Bengen, W.P. (1994). Determining Withdrawal Rates Using Historical Data. Journal of Financial Planning.
- Missouri Economic Research and Information Center. Cost of Living Data Series. meric.missouri.edu
- Tax Foundation. Property Taxes by State. taxfoundation.org
- New Jersey Division of Taxation. Retirement Income Exclusions. nj.gov/treasury/taxation
- Morningstar. State of Retirement Income 2025. morningstar.com/retirement/whats-safe-retirement-withdrawal-rate-2026
- Employee Benefit Research Institute. Spending in Retirement. ebri.org