Budgeting, Investing, Personal Finance Blog, Retirement, Saving

How Much Do I Need to Retire?

Screen Shot 2017-09-12 at 1.20.14 AMHow much do I need to Retire? That is the million-dollar-question… see what I did there? ;-)  Another way you could ask yourself this question is, “How little do I need to retire?”  This slight variation in how you present the question, will probably give you very different answers.

For those of you that have followed the topic of personal finance and early retirement for quite some time, this will not be news to you.  For those who have not asked themselves how much they will need to retire, or given much thought to it, let’s dig in and see.

Example 1*:

IF you follow the typical advice of ‘experts’ you will need to save 10-15% of your income towards retirement.  This is what that looks like for a 30 year old couple making $80k/yr who:

  • Has saved $30K already
  • Saves 12.5% of their income
  • Earns a modest 6% annual return on their investments

How Much Do I need to Retire example 1

At their current rate of savings, this couple will be able to retire in 39.1 years, at the age of 69.

Umm… yeah… NO thanks.  As a kid, I always thought it was ridiculous to HAVE to work until you basically couldn’t any longer.  Don’t get me wrong, I like being productive and hustling, it’s in my blood… I just don’t want to be required to do so by someone else.  Eff that!

The biggest factor in how much you need for retirement, is how much you spend:

Example 2*:

IF you follow the advice of the FIRE (Financially Independent Retiring Early) crowd, you will need much less than these industry ‘experts’ tell you.  For example, if you cut your expenses and increase your savings rate as a result, you can dramatically reduce the number of years it will take you to retire.

To put it simply: If you can spend less, you will need less.

This is what that looks like for a frugal 30 year old couple making 80K/yr who:

  • Has saved $30K already
  • Lives on one income (50%) and saves the other (50%)
  • Earns a modest 6% annual return on their investments

How Much Do I Need to Retire? Example 2

For this couple to maintain their current standard of living, they will be able to retire at the young age of 45!  What would you do with an EXTRA 24 non-working years?

If you’re worried about having too much free time on your hands, you can always find ways to stay busy and make extra money if you want.  Just because you retire doesn’t mean you have to stop doing things that generate extra income.  It just means that you don’t have to work unless you really want to.

Let’s be a LITTLE more realistic and assume that you can’t don’t want to save 50% of your income.  My wife and I have our 6th kid on the way and we live on one income, I get it…

Example 3*:

So, we’ll split the difference on the savings rate for the same couple, 30 years old, making 80K/yr who:

  • Has saved $30K already
  • Saves 31.25% of their income
  • Earns a modest 6% annual return on their investments

Screen Shot 2017-09-12 at 12.16.44 AM

At that rate, they will be retired at the age of 53 (almost 54).  Not too shabby!  They still shaved 15 years off of their original retirement date in Example 1 above.

So, How Much Do I Need to Retire?

There are many variables and things to consider when you start thinking about how much, or how little, you need to retire: Will you save more when you get raises during your working years? Will your mortgage be paid off (which will reduce your annual expenses in retirement)? Will you receive Social Security? Will you work part-time? Do you/will you have investment properties? Etc…

The first step in working your plan is setting a budget and figuring out what your annual expenses are.  Once you know that number, you know what you will need in retirement each year to maintain the same standard of living.  I find that most people are shocked to find out how little they really need to live on when they start writing their expenses out.

Next, take your annual expenses and multiply them by 25 to determine how much you need to save for retirement.  If you can live on $40K/yr, you will need an even $1M.  If your mortgage is paid off and the kids are gone, maybe you can live comfortably on $30K/yr.  In that case, you will need $750K.

Using the 4% safe withdrawal rate (assuming a reasonable 6-7% investment return that covers your withdrawals + some for inflation), you can withdrawal your retirement salary each year and virtually never touch your original investment… You will be living just off of your investment gains. “Um, yeah, I live off of the money my money made.” Swagtastic.


Hopefully these examples motivated you to see that it actually IS possible to retire in 25, 15, even 10 years if you really wanted to.  There are plenty of people out there who have done it and are living an early retirement in their 30s and 40s, so  let these folks be an inspiration to you and follow the steps that they have walked.  The biggest factor in answering “How much do I need to retire?” is how much you will spend.  It’s not rocket science, but the bottom line is:

  1. Spend less than you make (way less preferably)
  2. Start saving early
  3. If you didn’t start early, start your plan NOW – and tell the younger folks in your lives to start reading the Black Sheep Millionaire Blog!


* The screenshots are from Networthify.  Visit the site to play around with your own calculations.


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