The Rule of 25 Was Built on a 7% Market. Nobody Is Forecasting One.

Save 25 times your annual expenses and you are set for retirement. That is the whole pitch behind the “rule of 25,” and it is repeated at kitchen tables, in podcasts, and in a hundred glossy brochures. It is clean, it is memorable, and it is one number.

It is also built on an assumption almost nobody says out loud — and the firms managing trillions of dollars stopped believing that assumption years ago.

Where does the number 25 even come from?

The rule of 25 is not a rule. It is the 4% withdrawal rate flipped upside down: 1 divided by 0.04 equals 25. That is the entire derivation. If you plan to pull 4% a year from your portfolio, you need 25 times your spending to do it.

So every argument about the rule of 25 is really an argument about 4%. And for 4% to survive a 30-year retirement, a moderate portfolio has to average something in the neighborhood of 7% to 8% a year — roughly the long-run historical return of a 60/40 stock-and-bond mix. That is the engine under the hood. It is never printed on the box.

What the biggest firms are actually forecasting

Here is the part that should stop you cold. The institutions that manage retirement money for a living are not underwriting 7% to 8% for the next decade.

• Vanguard puts its 10-year outlook for a 60/40 portfolio in the range of roughly 5.7% to 6% — and has been tilting client money toward bonds because it sees stretched equity valuations ahead.
• BlackRock lands a little higher, near 6.8%.
• AQR is the bluntest of the three: a projected real, after-inflation return of about 3.4% for a global 60/40, well under the roughly 5% real return investors have gotten historically.

Not one of those numbers supports the 7% engine the rule of 25 quietly assumes. And these are not doomsday bloggers. These are the house views of the firms your 401(k) menu was probably built from.

The honest withdrawal number is not 4%

Morningstar reruns this math every year, and its safe-withdrawal-rate research has recently landed in the 3.7% to 4.0% band. Not comfortably above 4%. Sitting on it, or just under.

Watch what happens to the multiple when you use a realistic number instead of a marketable one:

• 4.0% withdrawal rate → you need 25x expenses
• 3.8% → you need 26.3x
• 3.5% → you need 28.6x
• 3.0% → you need 33.3x

On $100,000 a year of spending, that is the difference between a $2.5 million target and a $3.3 million one. The shortcut did not warn you about the extra $800,000. It just gave you a round number and a good feeling.

The part that actually keeps people up at night

Now layer in where the cash comes from. A moderate-risk portfolio today throws off something close to 2% in dividends and interest. If you are withdrawing 3.8%, dividends cover barely half your paycheck.

The other half comes from selling shares. Every single year. In up markets that is painless — you are trimming gains. In a down market you are liquidating principal at exactly the wrong price, and those sold shares never come back to participate in the recovery. That is sequence-of-returns risk, and it is the single biggest reason two retirees with identical portfolios and identical withdrawal rates can end up with wildly different outcomes based on nothing but the order the market happened to show up in.

The rule of 25 has no opinion on sequence. It cannot. It is one number.

What the shortcut also ignores

Even if the returns cooperated, the rule of 25 treats retirement as a flat line. Retirement is not a flat line.

• Spending is not level. Go-go years cost more, slow-go years cost less, and no-go years can cost the most of all once care enters the picture.
• Taxes are not a footnote. A $2.5 million pre-tax IRA is not $2.5 million of spendable money. Required distributions, IRMAA surcharges, and the way Social Security gets taxed all take a cut the multiple never mentions.
• Social Security and pensions change the math entirely. Guaranteed income reduces how much your portfolio has to carry — and the rule of 25, applied to gross expenses, quietly overshoots for people who have it.
• Inflation is assumed, not guaranteed. One bad inflation stretch early in retirement does more damage than a decade of mediocre returns later.

So what should you do with it?

Use the rule of 25 the way you would use a bathroom scale: it tells you roughly where you stand, and it tells you nothing about why. As a napkin sanity check, it is fine. As a plan, it is a marketing number.

A real plan does four things the shortcut cannot:

1. Starts from current return expectations, not a century-old average. If the firms running the money say 5.7% to 6.8%, plan on that and be delighted if you are wrong.
2. Subtracts guaranteed income first. Figure out what your portfolio actually has to cover after Social Security and any pension, then size it to that number.
3. Prices retirement after taxes. Know which dollars are pre-tax, Roth, and taxable, and in what order you will spend them.
4. Builds a cushion for the years markets do not cooperate. Cash reserves, flexible spending, or a hedged sleeve — something that means you are not forced to sell into a decline.

The bottom line

Twenty-five is a nice, round, marketable number. Retirement math is not round and it is not guaranteed. The rule of 25 does not fail because it is stupid — it fails because it hides its single most important assumption, and that assumption is one almost no major firm is willing to publish anymore.

If your entire retirement thesis is a multiple, you do not have a plan. You have a rounding.

Sources: Investopedia (4% rule), Vanguard Capital Markets Model, BlackRock Capital Market Assumptions, AQR 2026 Capital Market Assumptions, Morningstar retirement-income research, PortfoliosLab 60/40 dividend yield. Forecasts are projections, not guarantees. This is general education, not personalized investment advice.