How Much Do I Need to Retire?
You need your yearly spending, less any pension or Social Security, divided by a withdrawal rate: $50,000 a year at 4% with no pension is $1,250,000 in today’s money, which is about $2,317,430 in the money of 25 years from now at 2.5% inflation. Type your own spending and pension to see yours.
What you need
$1,250,000
You need, in today’s money
- Portfolio must pay $50,000 a year
- In the money of your retirement year $2,317,430
- At 3.5% withdrawal $1,428,571
- At 3% withdrawal $1,666,667
- Monthly income the portfolio pays $4,167
| Yearly spending | Needed at 4% | Needed at 3.5% | Needed at 3% |
|---|---|---|---|
| $30,000 | $750,000 | $857,143 | $1,000,000 |
| $40,000 | $1,000,000 | $1,142,857 | $1,333,333 |
| $50,000 | $1,250,000 | $1,428,571 | $1,666,667 |
| $60,000 | $1,500,000 | $1,714,286 | $2,000,000 |
| $80,000 | $2,000,000 | $2,285,714 | $2,666,667 |
| $100,000 | $2,500,000 | $2,857,143 | $3,333,333 |
| $150,000 | $3,750,000 | $4,285,714 | $5,000,000 |
How is the amount worked out?
Needed (today’s money) = (yearly spending − pension) ÷ withdrawal rate. In the retirement year’s money: × (1 + inflation)^years until retirement.
Worked example. ($50,000 − $0) ÷ 0.04 = $1,250,000. Over 25 years at 2.5% inflation, 1.025²⁵ = 1.854, so the same purchasing power is $2,317,430 in that year’s dollars. With a $20,000 pension instead, ($50,000 − $20,000) ÷ 0.04 = $750,000.
Working out the spending figure
Start from what you spend now, then adjust: take out the mortgage if it will be paid off, work costs and retirement saving; add travel, hobbies and health. A common finding is that spending falls through the first decade of retirement and rises again late on with care costs, so a flat figure is a reasonable average.
Pensions and gaps
A pension that starts at 67 does not help a retirement that starts at 55. Two numbers cover that: the no-pension number carries you for the gap years, the with-pension number after. In practice the portfolio needs the gap years’ spending on top of the with-pension number: twelve years at $20,000 is $240,000 more.
From the amount to the plan
Once you have the number, the FIRE calculator shows when your saving reaches it, the early retirement calculator tests a chosen retirement age, and the safe withdrawal rate calculator shows how long the money lasts at each rate.
Questions about how much you need
How much do I need to retire?
Your yearly spending in retirement, less any pension or Social Security you will receive, divided by a withdrawal rate. $50,000 a year with no pension at 4% is $1,250,000; with a $20,000 pension it is $750,000.
Should I count Social Security or a state pension?
Yes, if you are confident of it and of the age it starts. If you retire before it starts, the portfolio carries everything until then; a simple fix is to use the no-pension number for the gap years and the with-pension number after. Type only the amount you expect to be paid, in today’s money.
Why two figures, today’s money and the retirement year’s?
The $1,250,000 is what the pile must be worth in today’s dollars. If you retire in 25 years and prices rise 2.5% a year, the statement you open that year will need to say about $2,317,430 to buy the same things. Plan in today’s money; expect to see the bigger figure.
Is 4% right for a normal retirement at 65?
It is the standard planning figure for a 30-year retirement and has worked in about 95% of historical US periods. For a longer retirement, or a cautious plan, use 3.5%; the results show the number at 3.5% and 3% beside the main figure.
What about health costs and the house?
Put them in the spending figure. Health costs tend to rise late in retirement; a paid-off house removes rent but not upkeep and tax. If you plan to downsize, the money released can be subtracted from the number.