When can I retire?
Back in the day, it was more common for employers to offer pensions. Basically, after working for 30 years, an employee would receive X% of their salary for the rest of their lives. When that was the norm, the question of “When can I retire?” was much more straightforward. You could simply retire whenever you could start receiving your pension.
Pensions are becoming increasingly rare, and it’s now more common for employees to fund their own retirements by saving in a 401(k), IRA, 403(b), etc. This has added a lot of variability to the answer of when one can retire. It ultimately comes down to how much you save.
How much do I need to save to retire?
It is typically recommended to save at least 15% of your pre-tax income towards retirement. With this savings rate, it would take approximately 40-45 years to save for retirement. In other words, if you started working and saving in your 20s, then you would be able to retire in your 60s. Of course, there’s some variation to this depending on how both your income and your spending might vary throughout your life.
How can I retire sooner?
If you want to retire sooner, you can increase your savings rate. Increasing your savings rate also means you’re spending less, so you need a smaller nest egg, but you’re saving even more to get there. With that, increasing your savings rate can greatly accelerate your time to retirement. Even saving 5% more of your income can enable you to retire 5-10 years sooner!
The calculator below starts by determining how much you need to retire based on your monthly spending. It then looks at how much you have saved so far, how much you can save every month, and what investment returns you expect on your savings.
- Monthly Spending – How much you spend every month. You can get this from looking at your monthly budget or tracking your expenses for a month. You can also enter a different number if you expect you will spend a different amount in retirement.
- Starting Principal – The total amount of savings and investments you have already.
- Monthly Contribution – How much you can continue saving every month.
- Rate of Investment Return – The expected return you will earn on your savings and investments. This is across the board, so if half of your money is earning 10%, and the other half is earning 4%, you would use 7% for this calculation.
- Amount Needed to Retire – This is how much you will need to have saved to retire based on the “4% withdrawal rule”. The 4% withdrawal rule estimates that you can spend about 4% of your portfolio every year and your savings will last at least 30 years. This is based on what was called the Trinity Study. It looked at different portfolio allocations and different starting years, and determined that a 4% withdrawal rate was more or less safe, i.e., the retiree would not run out of money. Market conditions and everyone’s own situations will vary, but this is a good starting point to get an idea of how much you need to retire.
- Time Until Retirement – The output will tell you how long, in years and months, before you can retire. You can play around with the Monthly Spending and Monthly Contribution to see how that affects your retirement timeline.