The two questions
Retirement planning asks how much you need to accumulate, and how much you can safely withdraw once you stop earning. Both depend on assumptions that deserve scrutiny.
Replacement rate
A common planning starting point is that retirement spending runs somewhere around 70–80% of pre-retirement income. Some costs fall — commuting, work clothes, saving itself — while others, healthcare especially, often rise.
That figure is a rule of thumb, not a finding. Someone retiring with a paid-off home and modest tastes may need far less; someone planning extensive travel may need more than they earned.
Withdrawal rates
The widely cited 4% guideline suggests withdrawing 4% of the initial balance in year one, then adjusting for inflation. It came from historical US market analysis and was framed as a starting point for discussion.
Its limitations are real: it assumes a particular portfolio mix, a 30-year horizon, and a return environment resembling the past. Treat it as one reference point rather than a rule.
Sequence of returns risk
This is the risk people most often miss. Two retirees with identical average returns can end up in very different positions depending on when poor years occur.
A sharp decline early in retirement, while you are drawing down, does far more damage than the same decline later — because withdrawals lock in losses on a shrinking balance. It is the main argument for holding a cash or bond buffer in the first few years.
What projections cannot capture
Inflation over decades, healthcare costs, how long you live, tax changes and market returns are all genuinely uncertain. Run several scenarios rather than one, revisit annually, and treat any single projected number as a planning aid rather than a forecast.