How much should you save for retirement: chart
We calculated exactly how much money you would need to save to retire within various time periods.
Before looking at the graph, we made three assumptions to calculate how much you need to save for retirement. First, we assumed a 10% annual rate of return on investments. This number may seem high, but consider that the historical return of the S&P 500 stock market is about 10.5% per year. You can also earn higher cash-on-cash returns on rental properties by using leverage in real estate investing.
The second assumption is that your withdrawal rate in retirement will be 4% (the 4% rule), although for rental properties you can bend this rule using tactics such as the BRRRR method.
Finally, we've assumed that you'll maintain the same cost of living in retirement as you did while you were working. That is, if you make $5,000 after tax and have a 20% savings rate, we'll assume that you'll continue to spend $4,000 per month in retirement ($48,000 per year, or $1.2 million in savings if you follow the 4% rule of thumb).
Here are the savings rates you'll need to retire at different time periods:
Savings Rate Time (years) 5% 40.8 10% 33.2 15% 28.6 20% 25.2 25% 22.5 30% 20.2 40% 16.4 50% 13.2 60% 10.3 70% 7.7 80% 5.1
Concrete example
To put these numbers in perspective, let's say your after-tax annual income is $100,000 ($8,333.33 per month). Your savings rate will result in the following monthly savings amount, monthly target spending amount, and target savings amount:
Savings RateMonthly SavingsMonthly Living ExpensesGoal Annual IncomeYears to reach goal savings 5%$416.67$7,916.67 $95,000.00 $2,375,000.00 40.8 10%$833.33$7,500.00 $90,000.00 $2,250,000.00 33.2 15%$1,250.00 $7,083.33 $85,000.00 $2,125,000.00 28.6 20%$1,666.67 $6,666.67 $80,000.00 $2,000,000.00 25.2 25%$2,083.33 $6,250.00 $75,000.00 $1,875,000.00 22.5 30% $2,500.00 $5,833.33 $70,000.00 $1,750,000.00 20.2 40% $3,333.33 $5,000.00 $60,000.00 $1,500,000.00 16.4 50% $4,166.67 $4,166.67 $50,000.00 $1,250,000.00 13.2 60% $5,000.00 $3,333.33 $40,000.00 $1,000,000.00 10.3 70%$5,833.33 $2,500.00 $30,000.00 $750,000.00 7.7 80%$6,666.67 $1,666.67 $20,000.00 $500,000.00 5.1
Keep in mind that these figures don't include income taxes in retirement, but there are plenty of options for reducing or avoiding taxes in retirement, from Roth IRAs to rental property tax deductions to ways to avoid capital gains taxes on real estate.
The figures above also do not include any Social Security benefits you may receive. To include these benefits and other sources of income such as rental properties, see our Financial Independence/Early Retirement Calculator.
However, these tables require a bit more explanation, so here are some ideas for achieving Financial Independence and Retire Early (FIRE) in the short term.
How much do I need to save to retire in 5 years?
Even with an 80% savings rate, it would take just over five years to achieve financial independence, at least with the assumptions built into this exercise.
In the example above, you would take home $8,333 each month, meaning you would live on $1,667 per month — not just now, but in retirement, too.
That's a tough ask in today's world.
If you want to retire within five years, you'll need to bend some rules: Plan to earn a higher rate of return than the 10% we used to calculate these figures, or invest in real estate to bend the 4% rule.
For example, if you refinance a rental property using the BRRRR method, you can reuse the same down payment multiple times, theoretically allowing you to achieve financial freedom with just one down payment.
You can even bend the rules further by continuing to work after retirement and doing something fun or meaningful (ideally both) — for example, I like to imagine myself working part-time at a winery to make some extra money after retirement.
How much should you save for retirement in 10 years?
If your savings rate is 60%, you can retire in 10 years.
Continuing with the example from above, that would mean living on $3,333 per month and investing the remaining $5,000 you earn each month. Millions of Americans live on similar budgets, but don't expect to live a lavish life.
Again, look for ways to bend the rules, such as higher investment returns, higher withdrawal rates, higher leverage, or continuing to work part-time or full-time while doing something fun for retirement income. Take advantage of employer matching contributions to tax-advantaged retirement accounts. This is essentially free money that can help you increase your savings rate and reach your savings goals faster.
How much do I need to save to retire in 15 years?
If you are willing to save about 45% of your income, you can become financially independent and retire in 15 years.
In the example above, you would save $3,750 each month and live on the remaining $4,583. We're getting into more realistic territory for the average person interested in financial independence and early retirement.