How Much Do I Need to Retire?

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“How much do I need to retire?”

When I searched online, the results showed a host of retirement calculators purporting to tell me how much money I will need to retire. I tried three calculators, and according to them, I either am right on track for my retirement goals, or I need to start saving $37,000 a month to reach them. Hmmm, I’m going to need a big raise…

Through the same search, I found articles claiming to know the answer to this question, too. But they either give vague answers (“8 times your salary”) with nothing to really back that figure up, or they give specific amounts (“$1 Million per person”), again without much information to really back up the numbers. What if they are just guessing, and it doesn’t work out?

The news is rife with stories about people who retired super-early, in their 30s and 40s. How much money did they have for retirement? They didn’t win the lottery — how did they save up so much, so fast?

So how much money do you really need to save for retirement?

Track Your Spending

You cannot possibly know how much you need to save if you don’t know how much you are currently spending. You can find an app for your phone, make a spreadsheet on your computer, or go old-school and grab a notebook. I keep track of date, dollar amount, store, and a brief description of items purchased. A few months of tracking should give you a good idea of how much you regularly spend. The more detailed your data is, the better you can analyze it later.

Related: Why Combining Investment Strategies is Vital to Retirement Income & Net Worth

The first time I started tracking spending was November a few years ago. It escaped my observation that I was hosting four extra people for Thanksgiving, plus we have two birthdays that month. I was really surprised at how much we spent, and the next month had eight more people over for an extended Christmas, plus presents, etc. Start tracking spending in a more normal month, like March or April, for a more accurate account of how much you spend routinely. Keep track for at least a year so you get a well rounded picture.


Review and Budget

Now that you know how much is leaving your pockets every month, review your numbers to make sure that is really where you want your money to go. Did you know you spent that much on gas or food? Do you really want to be spending that much on entertainment or clothing?

Tweaking your spending now can have a big impact down the line. Make a budget, and stick to it. The first few months are the hardest, as you are setting a routine. On the other hand, if there is a line in the budget that just doesn’t work, change it. This is your budget, your money, and your retirement.

So, How Much Money Do I Need to Retire?

We still haven’t really answered this question. Let’s look to William Bengen and see what he has to say.

The 4% Rule

Personal finance bloggers across the whole internet love to talk about the 4% rule. Four percent is a small number. What does it really mean?

In 1994, William Bengen released his findings from a study he performed. He looked at the past 75 years of stock market returns along with numerous retirement scenarios and concluded that if you draw no more than 4% of your retirement savings the first year of retirement and adjust for inflation for subsequent withdrawals, your money will most likely outlast you. In other words, you won’t run out of money if you only take out ~4% each year. This idea was studied again in 1998 by the Trinity Group with similar conclusions.

This was a groundbreaking study, taking into account the lowest of the low times for the stock market and looking not only at the average of the market itself, but also into each individual year. The average has to account for three major financial downturns. The highest highs get swallowed up by those incredible lows in the average, but individual years show some tremendous returns.


Bengen ran copious scenarios, and in 96% of the cases, the money did not run out before the end of his 30-year time period. In many cases, depending on the stock/bond ratio, the money continued to pile up, so that at the end of those 30 years, there was significantly more than at the beginning.

He also ran the scenarios at several different disbursement rates from 3% to 6%. Withdrawals of up to 3.5% have a 100% success rate, while withdrawing 6% has a less than 40% chance of success.

The sweet spot for retirement account allocation is between 50-75% stocks, with the remainder in bonds. The closer you are to the 75% stock allocation, the closer you get to the perfect balance of asset longevity and maximizing the accumulation of wealth to pass on to your heirs. A portfolio consisting of less than 50% stocks or a portfolio more than 75% stocks is “counterproductive” according to Bengen.

His study does not account for any additional income after retirement, so if you have a healthy pension, social security or even modest rental income, you could be fine with lower withdrawals or even a smaller initial nest egg.

So according to Bengen, you can safely withdraw up to 4% of your retirement savings the first year. Going back to that tracking of spending you did, you know how much that needs to be. For me, I figured $40,000 a year will allow me to have ridiculous spending years, like when both cars need new tires, plus the furnace goes out, and the hot water heater dies. But those years don’t happen every year, so most likely, $40,000 is going to be too much for me. (I’m a frugal gal.)

So to see how much I need to save for retirement, I take my $40,000 and multiply it by 25 to come up with $1 Million.

My initial $40,000 is heavily padded — tracking our spending showed we need about $24,000 a year. My husband grew up without a lot of money and is leery of leaving the workforce without a significant cushion. He also doesn’t want to work longer than he needs to and leave this earth with millions unspent. Bergen’s 4% rule doesn’t address your own feelings about money.


Early Retirement & Your Relationship With Money

I truly believe your early experiences with money shape your relationship with it. There are basically two ways to grow up: with or without money. There are also two basic ways to treat money: save it or spend it. Some people who grow up without money save like crazy because they know what can happen without a cushion. Some who grow up without money spend like crazy to try and compensate for what they missed out on as a child.


I have a friend named Eric who grew up with no money. He distinctly remembers having a Coleman cooler in place of a refrigerator. Fast forward to adult life: he is mid-50s and makes six figures. His expenses are around $25,000/year. In addition to his full time job, he owns 24 rental units. They are all in the same complex, and he purchased many of them at steep discounts when the complex was a disaster.

He has put a lot of time and sweat equity into the property to turn it from a D class complex to a B+ class complex. He took over the HOA and started enforcing rules that had been ignored for years. This complex owes a lot to him.

Related: I Quit My Day Job, Retired Early & Started a New Venture Using Real Estate: Here’s How

He collects $25,000 a month from his rentals. His expenses are $10,000. He is sitting really pretty. And yet he continues to go to his 9-5 job every day. He takes care of almost all repairs at his properties himself; he manages all his units by himself. His early childhood and going without makes it difficult for him to pull the trigger and retire.



On the other side of that coin, my friend Brandon retired at age 27. He grew up solid middle class. He had been aggressively picking up rental properties and finally had enough passive income to replace his active income, so he left the workforce. He had about $5,000 saved up, in addition to his rental units that were cash-flowing about $3,500 a month, so not a huge nest egg to fall back on should this whole rental thing not follow the plan.

I think part of Brandon’s thinking was, “Hey, I’m young. If this doesn’t work out, I’ll go get a job again.” It’s a lot easier to get a job when you are 27, than when you are 57, no matter what anyone tells you.

Still Not Convinced? Add Some Passive Income

I grew up more like Brandon than Eric. Money has never been an issue for me; if I needed more, I just worked more hours or got an additional job. I waited tables in my early 20s while in school, and that really gave me all I needed to live. But waiting tables is physical work, and I don’t want to do that anymore.

My retirement strategy is diversification across a variety of assets, including the stock market and real estate. I invest in the stock market, mostly through low-fee index funds. With the 4% rule, I know exactly how much I need to invest in the stock market to retire.

However, real estate also factors strongly into my plans. I am currently negotiating the purchase of a four-plex. No matter what the stock market does, people always need a place to live and rental properties will provide me with consistent cash flow.

Retirement Planning is All About Numbers

Remember that retirement all comes down to a few simple numbers.

The first number you need to be concerned with is your annual budget. Keep careful track of your spending to determine how much you need to live every year.

If your investments are in the stock markets, multiply your annual spending by 25 to get your retirement magic number. Once you’ve hit that figure, you have permission to sail into the sunset.

If your investments are in real estate, you’ll need enough rental income to fund your life.


Retirement Planning is All About You

There are a lot of emotions around money. How you grew up and what your parents taught you (or didn’t) has probably molded your adult money habits. Perhaps you have money security issues and will choose to work for an extra decade to be absolutely sure you’ll never run out of money. Or maybe you’re more like Brandon and will take the plunge in your 20s with minimal savings.

No matter what your background is and what you decide to do once you’ve reached your number, just being able to retire is a very powerful force. While you may love your job, you never know when the story of your life will unexpectedly change. A family member could get sick, you could wake up one morning and decide you’d like to live abroad or your job may end without your permission. Having enough money to retire will give you peace of mind and the means to ride out almost anything life has to throw at you.

So, how much do you need to retire? Have you figured out your retirement numbers yet? Did you use different calculations?

Please share your thoughts.

About Author

Mindy Jensen

Mindy Jensen has been buying and selling homes for almost 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real estate agent in Colorado, author of How to Sell Your Home, and the community manager for, where she helps new and experienced investors learn the proper ways to invest in real estate to grow their wealth. Mindy is an alumnus of the School of Hard Knocks and will happily share her experiences with anyone who asks. When you can get her to stop talking about real estate, you can find her on her bike or adventuring in the beautiful mountains of Colorado.


  1. Scott Trench

    Awesome, awesome article Mindy!

    My biggest takeaway from this is that retirement is all about spending. For every extra $1,000 in luxury you want to pay for, you need to save an extra $25,000! Even for someone that earns a great living, saving $25,000 is no joke.

    A point that I’d like to add to this topic is that the 4% rule applies to totally passive investments. It’s probably very realistic for your friend Brandon (who sounds familiar…) to “retire” by managing his real estate portfolio for a few hours a month. He’ll earn a great return by avoiding management costs, and be able to slowly transition to fully passive assets by reinvesting his outsized returns. Just an example of how real estate can be used effectively as part of that transition to fully passive retirement.

    • Mindy Jensen

      Thanks for reading, Scott.
      Retirement IS all about spending. The more you spend now, the longer it will take for you to be able to retire. Conversely, the more you save now, the earlier you can get to your “magic number”.

      But you don’t have to save the $25,000 for every $1,000 you want to spend in retirement. You just have to invest well enough to grow your savings into that $25,000.

      I dislike the word retirement, to be honest. I prefer the term financially independent. Having enough money to no longer HAVE to work is very freeing.

      And thanks for bringing up the point again – that the 4% Rule is for totally passive investments AND accounts for zero additional income. Having a rental portfolio that generates your expenses or more is an excellent way to become financially independent.

  2. Bill Jacobsen

    I like to be conservative in my numbers. Thus, I want my assets to generate the cash income that I will need in retirement. If I invest in dividend paying stock which yield 4% then I need $2.5M for each $100,000 of income. I expect my stocks and dividends to increase at least by the rate of inflation.

    In real estate if I own 7% cap properties, I will need $1.4M to provide the same income. I expect rents and property appreciation to keep up with inflation. This is guaranteed to work. Never spend more than you make.

    Thanks for the article.



    • Mindy Jensen

      “Never spend more than you make.” I couldn’t have said it better myself.

      Thanks for reading, Bill. You sound like you have more in common with my friend Eric – which is fine. I think your numbers work. But YOU are the one who has to be comfortable with them.

  3. Brandon Hall

    I see many problems with “setting a number” to determine when you can feasibly retire.

    1. It largely depends on what types of retirement accounts you are utilizing in your retirement planning. $1MM in a Roth IRA is a lot different than $1MM in a traditional IRA.

    2. Generally this type of investment advice is targeting 20-somethings to convince them to change their spending and savings habits at an early age. That being said, by the time I’m 65, I fully believe that technology will have advanced to a point where I will live to be much older than today’s average lifespan. So how do you plan for that? What happens when I determine “my number” and all of a sudden I realize I didn’t die when I was supposed to? Now I’m old and poor.

    3. I’ve read the study you referenced before and it’s excellent. If you notice, the real rate of return you can expect to earn annually is about 5%. Then you take your 4% draw and you are left with a real 1% increase annually – yikes. If we look at that as an investment, or a business, we realize that’s one heck of a small profit margin.

    4. I think the idea of “retirement” is transforming (or maybe only because I’m young and have young friends) in that I can’t imagine simply retiring. I can’t imagine what it would be like just hanging out and not applying myself in some way, not trying to make money, not keeping my mind sharp. It’s a foreign thought and it may change when I get older but I doubt it. Real estate is a timeless business, people literally work in the industry until they die because they love it so much and it’s so rewarding (not just money, but the network you build). I think I’d be like Buffet, mid-80s and still showing up for interviews on CNBC at 7am, and I think many of the people I associate with will do the same.

    My advice is to focus on shoveling your money into assets that will appreciate and provide you with solid income. Like Scott said, as long as your friend Brandon keeps his spending under control and can figure out how to continually save, he’s set for life.

    You don’t need a massive nest egg. What’s important is the income your assets generate vs. your spending levels. If you don’t spend more than your assets generate, you are set.

    • Mindy Jensen

      Thanks for reading, Brandon.
      This concept can be tough to grasp at first – but I believe in that Bengen study.
      Yes, a Roth IRA is funded with post-tax money, so the money growing in it will be tax-free upon withdrawal. That makes it seem like a no-brainer, and I believe you should fund a Roth if you have the means. But the Roth has low annual limits – $5,500 for 2015 and only $6,500 if you are over 50 – so the amount you are trying to grow isn’t going to turn you into an instant millionaire.
      The Bergen study came out in 1994, the Roth wasn’t introduced until 1997 so he doesn’t account for it.
      Your points 2 and 3 can be addressed together. You don’t want to run out of money, and making 5% while taking out 4% leaves you with a 1% gain. Yes and no. That 5% is the profit you make in the year. By withdrawing only 4% – even adjusted for inflation – you will be withdrawing less than your profit, thereby not touching the principal while growing your pile of money. If this continues – and that 5% is the average – you will not ever touch your initial money pile. If you never even touch the initial money pile, you should never run out of money.
      I think his 5% is low, but it is the historic stock market he is looking at, and his mix in that particular scenario is 60/40 stocks/bonds. He says you can go up to 75% stocks and see the same results as his. I like that ratio much better. (DISCLAIMER: Past performance is not indicative of future gains. Do your own research before you invest.)
      And yes, I believe retirement is transforming as well. I am in my early 40’s, and just started working after an 8-year hiatus to raise my kids. I am looking forward to a long and productive career because I CHOOSE to work, not because I HAVE to work. Having a job because you choose it makes the job much more enjoyable.
      Real estate is an excellent way to grow your wealth – even Mr. Buffett owns property. (Almost completely unrelated side note: Have you ever been to the Berkshire Hathaway Annual Meeting? If you have any opportunity, check it out. So interesting and he is such an amazing mind.)
      Your last bit is perfect: If you don’t spend more than your assets generate, you are set. Precisely the point of the article.

  4. Chad Carson

    Good article to get everyone thinking, Mindy. I couldn’t agree more that tracking and getting control of spending is the most important job for many reasons.

    I am more like Bill above and back into a rough number based on my personal overhead. So if I own $1 million in properties free and clear at a 6% cap, it would cover my $60,000/year in overhead. I like to use a more conservative cap # even though I typically buy much better than that. And I don’t include management fees in my anticipated cash flow, even if I do part of my management.

    Something very important to me are mini-retirements. I want to hedge for the long-run by stashing away a lot of cash, but I want to take breaks all along to detach myself from the work cycle and recenter myself. Like Brandon said above, most of us work and work anyway, so why wait until some fictitious day in the future when you will FINALLY retire. Do it all along with multi-month or multi-year trips, and don’t sweat it if it takes a little longer to get to full financial independence.

    • Mindy Jensen

      Thanks for reading, Chad.
      I like this idea as well, although the power of compound interest can be a reason to stay in the rat race a little longer earlier on. The earlier you stash your cash, the longer it can grow and the larger it becomes. It seems like such a no-brainer, but how many people do you know with zero saved for retirement?
      But absolutely, once you get a nice sized nest egg, take a break. Life is for living.

      • Chad Carson

        I hear ‘ya on missing the compound interest in early years, but I think taking the break earlier than later has other life-benefits that compound even more than the money. It sounds like you’re a mom. I’m a dad of young kids, and I miss a year or two of early life with kids while working like a maniac, can I ever replace that time? And how will those missed moments, missed lessons to teach, and missed support I can give compound negatively in their lives? It sounds like you already took the break with your kids, so kudos to you.

        I know there is a balance between the money and the life experiences, but I’m less worried about the big nest egg in the end. That will take care of itself, and like everyone says – we’ll all still be working anyway!

        • Mindy Jensen

          You never get those missed moments back, that is true. What I was really talking about is working during your early years – like 20’s. But that also assumes having children later. It is all give and take.

  5. Honolulu Aunty

    This was a great article – I found 4% to be an interesting number. I am already in my 60’s and wondering what my retirement picture will be. However, I have been crashed and burned in the stock market so many times and, like a fool, I keep returning to the flame.

    I love real estate investing in cash flow properties, but they are boring compared to the exciting stock market.

    I still have a job, I almost qualify for my full social security benefits, and my Roth IRA is used for untaxed growth. I should be in good shape, but I need to take an honest current financial picture in order to figure out what my financial future will be.

    Mahalo for your writing. It is both a wake up call as well as homework that has been put off for too long.

    • Mindy Jensen

      Thanks for reading, Honolulu Aunty. I love your island and I love your city!

      The stock market, historically, has always recovered. Those lows are always followed by incredible highs. (DISCLAIMER: Past performance is not indicative of future gains. Do your own research before investing.)

      The stock market IS exciting, and I hop back and forth between stocks and real estate. I am having a hard time finding a good place to put my cash in real estate, so it currently sits in the market. But I will sell and buy real estate when I find the right place. Right now, the market is on a tear, so it is tough to jump out. But real estate excites me.

      An honest current financial picture should be taken, just to give you a good idea of where you stand. It is better to know the facts. Good luck!

    • Mindy Jensen

      It is a tough habit to make, but it is so worthwhile to track your spending. Before I started, I had NO IDEA how much I spent at the grocery store. It is much easier to make cuts when you know how much is in the category to begin with.
      Thanks for reading, Zeresenai!

  6. Celina De La Torre

    Great Article! I am all for creating financial independence and a good plan for retirement.
    Another thing we must all consider when thinking about retirement is how much of the money we accumulate we will actually be able to keep, and how much it will be worth when we reach the age of retirement.
    1. -How much we will be able to keep: We really do not know what taxes are going to be in the future (capital gains, income tax, etc.). Depending on what we invest in, that will determine how much will be lost (or kept) to taxes. This is a HUGE part of the retirement equation that many of us tend forget.
    2.-How much it will be worth: There is a silent assassin that decreases the buying power of our money every year… INFLATION. For people that are getting close to retirement, this won’t affect them as much, but for those that are younger (20’s, 30’s, 40’s, and even 50’s) this should also be calculated in their retirement planning. It has averaged about 3% for the last 80 years.
    For example: Let’s say I am a 30 year old female who is thinking about retiring at age 65. If I want to live off $3,000 of today’s dollars a month at retirement, how much would I actually need to withdraw from my retirement account(s) every month at age 65? $8,441.59!!! That’s almost 3 times the amount of today’s dollars!

    **Taxes and Inflation** cause an enormous impact in future retirement and estate planning.

    I currently have a financial adviser that has helped me create a concrete plan for my retirement. She has taught me so much about how retirement plans work and what needs to be considered when planning for my future. If it hadn’t been for her, I would not have realized what I didn’t know. I have saved thousands of dollars by just sitting down with someone who has educated me on how finance works. I definitely recommend having a financial professional look at your individual situation and help you determine your needs for the future, and to help you create a plan that will allow you to meet your financial goals.

    Happy Retirement Planning!

    • Mindy Jensen

      Thanks for reading, Celina.
      The Taxpayer Relief Act of 2012 made permanent changes to the tax code regarding long term capital gains taxes. They are now tied to your income tax bracket and are taxed at 0% for the 10-15% income bracket, 15% for the 25-35% bracket and 20% for the 39.6% bracket. Presumably you will be in a lower income bracket after retirement. (And of course, this is a general rule with exceptions so consult a tax professional before making financial decisions.)
      The 4% rule does take inflation into account – that was one of the problems with some financial planning prior to this study.
      I do agree that you should learn about financial planning and retirement. I think financial education in America is severely lacking. You said it so succinctly: “…I would not have realized what I didn’t know.”

  7. Jeff S.

    Nicely written Mindy. Retirement is the subject people never get tired of. It is amazing that “retirement” has become such a big business. When my parents and their friends retired it was a simple choice. For many it was a mortgage burning party. For others it was years spent at AT&T and early out with lots of dividend paying stock and a pension; or just ample savings and investments with Social Security. They sat down with pencil and paper and with a little arithmetic figured out if they could do it. Now it is complicated equations which are meant to intimidate you to feel a need for a consultant, along with hefty fees of course.

    My experience says it is very difficult to get a million dollars in a 401k. For some it will be easy if they are in a high paying profession. If a family doesn’t have a pension then they better get serious about saving and investing. I like doubling down where you could retire on your RE and/or you could also live off savings and SS etc. For me it is a pension and RE. Yet to tap SS or savings investments. Using 2 legs of the stool and don’t even need the other 2. Chance of running out of money is zero.

    • Mindy Jensen

      Way back when, you could count on a pension. I know very few who have one now – mostly union and public servant jobs. And way back when, I think people lived within their means, which included saving money. My grandparents lived through the depression, so my parents had it ingrained in them that money was precious and not to be spent frivolously. The lesson seems to have been lost.
      I agree with your doubling down with real estate. I have jumped in and out of the stock market and real estate my whole adult life. I love real estate, and am looking for a way back in. My local market is tough right now. The stock market may crash, but people will always need a place to live.

  8. Bob Ebaugh

    Interesting article, Thanks! No firm answers here. My wife and I are mid 50’s. Never made much on the stock market or stock market funds. Maybe 3-5% annualized with peaks and valleys. Getting closer to retirement, we got conservative and switched to bonds and made nothing….so that’s what brought us to Real Estate. Basically buy and hold, we manage. Targeting 8% returns. Pretty new to this with 12-18 months of history. Basically meeting that target and happy with the decision. Good luck to anyone trying the same!

  9. Michael Begley

    I would caution that the four percent rule came from a study for a safe drawdown rate for retirement at the standard age and a normal life expectancy, Doing so from age 30 to 100 would have a much lower success rate!
    Also, the 4% rule is applicable to amassed savings, but rental real estate offers an alternative. A rental yielding $500 per month, or $6000 per year, would equate to $150,000 in savings for the 4% rule, but it offers interesting twists. First, while it may be a true $150k asset, you may have acquired it for much less than $150k, perhaps only $30-40k for a down payment and some rehab. Second, increasing rents will help increase your income without depleting the asset. Third, once your renters have paid off the mortgage, your income will triple! Finally, when you finally decide to sell, appreciation most likely will have kept pace with or exceeded inflation, and you can add it to you 4% rule kitty.
    We have found our RE portfolio to be an excellent partner to our standard 401k/IRA capital accumulation.

    • Mindy Jensen

      The 4% rule does come from a study centered around the traditional retirement age and length – Bengen chose a 30-year time frame for his study. 96% of scenarios played out successfully for 30 years. At a 3.5% draw down, 100% of scenarios played out successfully for a 50-year time frame.
      I love real estate, and would recommend a real estate portfolio to supplement any retirement plan. People will always need a place to live.
      Thanks for reading, Michael.

  10. Dmitriy Fomichenko

    Excellent article Mindy. I like the term financially independent too, and according to me, it is more about replacing your monthly income with passive investments, while having a contingency fund that can replace 12 months of regular income. Thanks for sharing!

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