Whether you want to retire in three years or 30, you still need to answer a fundamental question: How much money do I need? It’s a question with both simple and complex answers, depending on how far down the rabbit hole you want to go. Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free The first rule of retirement planning is it’s not based on your income, it’s based on your spending. And those are hopefully two very different numbers. You don’t need to replace your current income with investment income. You need to cover your living expenses, and the lower they are, the less money you need for retirement. Once you reach that point of being able to cover your living expenses with your investment income, you’ve achieved financial independence. The second rule of retirement planning: your retirement income can—and should—come from multiple sources. Sources of Retirement Income You can reach financial independence in your 30s if you really want to. And the same logic applies if you’re just getting started with income investing later in life. You can achieve financial independence quickly if you funnel most of your money into investments. Each of the sources of income below have their own pros and cons, which is one reason why you should invest in several of them. Here’s what you need to know about each and how to balance them for diversified retirement income. Stocks & Bonds Stocks grow in value faster than any other conventional investment, including real estate. But they don’t generate as much passive income (in the form of dividends) as some other asset classes. Taking into account both appreciation and dividend/rental income, stocks and real estate actually produced very similar returns when averaged over the last 145 years. Both averaged around 7 percent total annual return. Bonds, on the other hand, generated lower returns over that period. They pay out a fixed return every month, and then you get your principal (your initial investment) back when they mature. Sounds great for retirement, except that safe bonds have offered low returns for, well, this entire century. But returns aside, what you really need to understand about stocks and bonds for retirement planning is the concept of safe withdrawal rates. Safe Withdrawal Rates If you know how much of your nest egg you can safely pull out every year, you can work backward to figure out how much you need to retire. The classic example is the 4 percent rule. Based on historical market performance with a balanced portfolio of stocks and bonds, if you withdraw 4 percent of your initial nest egg every year, then it is virtually guaranteed to last you at least 30 years. Say you have a million dollars when you retire. In your first year of retirement, you withdraw $40,000 (4 percent) of your nest egg to live on. Every year after that, you just raise that $40,000 by 2 percent for inflation/cost of living increases. After 30 years, your initial $1,000,000 may have grown to $2,000,000, or it may have shrank to $100,000, depending on how your investments do. But based on the market over the last century or so, your initial million should last at least 30 years. You can reverse this formula to calculate how much you need to retire. If you divide 100 percent by your withdrawal rate (in this case 4 percent), you get 25—which you can then use as a multiplier to calculate how much you need to retire. Continuing the example, you want $40,000 in income from your stock and bond portfolio to live on, so you multiply $40,000 by 25 to reach $1,000,000. If you want $50,000 a year, then you’d multiply that by 25 to reach $1,250,000 as your target nest egg. Related: The Big Advantage Real Estate Investing Has Over Stocks The Safe Withdrawal Rate for Retiring Young What if you want to retire young and live for 40, 50, 60 years after retiring, rather than the more traditional 30-year retirement? Easy: use a 3.5 percent withdrawal rate instead of 4 percent. I won’t get into the data, but financial planner Michael Kitces has demonstrated that 3.5 percent works as a “forever” safe withdrawal rate.  Based on historical returns, you’ll never run out of money at a 3.5 percent withdrawal rate. As a quick example, say you want $40,000/year income from your stock and bond portfolio after retiring, and you want to retire young. To get the multiplier for that annual spending, you divide 100 percent by 3.5 percent to reach a multiplier of 28.6. So, to determine how much you need to retire with $40,000 annual income on a 3.5 percent withdrawal rate, you multiply $40,000 by 28.6 for a target nest egg of around $1,144,000—more than you needed at a 4 percent withdrawal rate but not fall-to-your-knees-in-despair more. Fortunately, safe withdrawal rates don’t really apply to other forms of retirement income. Rental Income Rental properties come with some great advantages for retirement income. First, you don’t have to sell the underlying asset. You keep the property forever, and it actually generates better cash flow over time, not worse. And it keeps appreciating in value in most cases as a nice perk. Similarly, rental income adjusts automatically for inflation. You raise the rents by 1 to 4 percent a year, but your mortgage payment stays the same. Eventually it disappears entirely! Another advantage to rental income is that you can predict it accurately. I don’t mean this in a month-to-month sense; you’ll have the occasional vacancy or repair or other expense. But as an annual income average, you can predict cash flow with uncanny precision (see this visualization of predicting cash flow). Related: BRRRR Investing: The Ultimate Guide to the Buy-Rehab-Rent-Refinance-Repeat Strategy, Made Simple! Finally, you can leverage other people’s money to build your portfolio of income-producing assets. Often the cash-on-cash returns prove far higher when you use financing, and you don’t have to come up with much of the money yourself! In fact, using the BRRRR method, you can even recycle the same $30,000 over and over to create enough passive income to retire on. Challenges with Rental Properties It’s not all rainbows and butterflies of course. Rental properties require a lot of work: work to find deals, work to manage properties, work to learn how to invest in the first place. Keep in mind that you can outsource property management work for truly passive income. But you can’t outsource learning how to invest or the work to find deals (at least not easily). Beyond the work, real estate is not liquid. It’s time consuming and expensive to sell. Stocks, in contrast, don’t suffer from any of the challenges above. You can buy an index fund that mirrors the S&P 500 with no work or education whatsoever, and then you can simply sit back and watch it fluctuate its way to growth. When and if you want to sell, you click a button. The other challenge with real estate is diversification. Even with financing, you often end up with tens of thousands of dollars invested in a single asset. With a stock index fund though, you can spread the same $100 across thousands of companies. For all that, I love rental properties as a source of retirement income. The pros outweigh the cons—if you’re willing to learn the fundamentals. That way, you can use workarounds for all the challenges above. Other Sources of Real Estate Retirement Income Rental properties aren’t your only option for retirement income from real estate. Real estate investment trusts (REITs) are another classic option. Traded as public (or private) equities, you can invest in REITs like a stock or ETF. You buy shares instantly and can sell them instantly, as well—at least publicly traded REITs. Under SEC regulations, REITs must pay out at least 90 percent of their profits as dividends, so REITs usually offer high income yields. Another passive option is private notes. If you know and trust other real estate investors, you can park some money with them for them to buy their own properties. You can negotiate custom terms with them and often see outstanding returns with little risk. But again, only do so if you know and trust them to manage and invest your money well! Social Security Income You’re not entirely on your own for your retirement planning. While you certainly won’t get back all the money you paid in over the years, you’ll get some retirement income from dear old Uncle Sam. Use a free online Social Security calculator to estimate how much you can expect in income.  Just don’t expect it to stay the same over the next decade. Expect higher eligibility ages and lower benefits, as Social Security gets closer to its projected insolvency date in 2034.  It’s already happening, as Social Security has been quietly letting inflation eat away at its benefits for the last two decades. In fact, a 2018 analysis found that Social Security benefits have fallen 30 percent in real purchasing power since 2000.  Still, you can expect something. But young people will probably pay more and old people collect less from Social Security in future decades than they did in the 20th century. Thanks for nothing, Grandpa. Post-Retirement Gigs As a FIRE educator and writer, I hear the same few objections all the time. One of them is: “What, you’re just going to go sit on a beach for the rest of your life?” I don’t plan to. And I don’t recommend it for anyone else either. Just because you reach financial independence or even quit your high-stress day job, it doesn’t mean you shouldn’t work ever again. Quite the opposite; I’d urge you to go out and do your dream work! No matter what it is, you can probably get paid for it. Perhaps not as much as you earn at your high-octane current day job. But it’s surprising how often financial success follows passion, since passion inspires greatness. My parents always said, “Do what you love and the money will follow.” I never believed them in my youth, but I’ve come around—it just took me half my life to acknowledge they maybe knew a thing or two that I didn’t. From something as simple and low-key as pouring wine at a winery to offering freelance services to consulting to working for political campaigns, somewhere out there is work you’d love that someone will pay you for. Find it—ideally now. But if you feel compelled to wait until you’re closer to financial independence, I certainly understand that impulse. Final Thoughts Retirement planning is all about your savings rate. Yes, I just spent 1,700 words talking about investing. But the investing side is easy compared to saving. Wealth comes from the gap between how much you earn and how much you spend. That’s the great irony: the more you live like you’re wealthy, the slower you build actual wealth. Boosting your savings rate is mostly a behavior problem rather than a math problem. Even someone earning the median US salary can save $50,000 in two years if they’re committed to it. Real wealth comes from your investments, which exist largely on paper. It doesn’t come from a fancy house or flashy car. Those are actually personal expenses, not income-generating assets. Cut your expenses, and pump as much money as possible into wealth-producing assets like rental properties, stocks, bonds, and other true investments. Need some ideas to help you save more? Try these fun, funky, sometimes extreme savings ideas. As a final exercise, look at your target annual spending. Consider covering half of it with rental income and the other half by following a 3.5 or 4 percent withdrawal rate from your stocks (depending on when you want to retire). Spend less. Invest more. Reach financial independence. Sources:  https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-to-the-retirees-time-horizon/  https://www.ssa.gov/OACT/quickcalc/  https://www.ssa.gov/oact/tr/2018/tr2018.pdf  https://seniorsleague.org/loss-of-buying-power-press-release/ What’s your greatest struggle with retirement planning? How has your strategy evolved over the last few years? Share in the comment section below.