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How much do I need to retire?

Updated: Feb 21

How much do I need to retire?

Rules of thumb are simple ways to understand something. It's a heuristic, a mental trick to get 'close enough'. This means that rules of thumb and heuristics are not usually precise, they are just useful for going in the right direction. As such, I think using rules of thumb and heuristics have a time and place, but that also means they don't work for every situation.

At Irvine Wenborn, we do planning for people's lives and want to provide as much precision as we can, but we've found that not everyone wants total precision, they want a big picture (and that's ok). The chart below is just that, it's a big picture. It helps anyone and everyone understand roughly how much wealth they might need based on certain circumstances.

This chart shows how much you need to retire, based on age and how much you want to spend.

How much do I need to retire?

Above is a chart that shows how much wealth a person needs to have, based on how much they plan to withdraw from their wealth, each year. This answers the question, 'How much I need to retire?' The left hand (Y axis) shows the wealth needed, and the colour of the circle indicates how much a person is withdrawing each year.

If you want to retire at 40 and be able to spend $125,000 each year, you'd need about $3.7M to last all the way to age 95

Example 1

If a 40-year-old person wants to withdraw $125,000 each year, they would need to have $3,714,247 invested (see left).

If you wanted to retire at 65 and spend $25,000 each year, you need $523k to last to age 95.

Example 2

If a 65-year-old person wants to withdraw $25,000 per year, they’d need $523,257 (see right).

What this means for you

Save this picture. Keep a copy on your phone or computer or print it out. Talk about it with friends and family. This gives you a rough idea of what to wealth goal you can be working towards. It’s not likely to be perfect, but it’s a great start. You could call this 'critical mass' for wealth, 'FIRE', or simply what you need in order to retire. Those are all different sides to the same die.

If you someone spends a different amount each year of their retirement or financial independence (which is about 99% more likely than spending the same), the chart above will be off.

Quick Note: this is a general rule of thumb. This chart does not constitute personalised financial advice, as it is instructive to understand an idea of the wealth needed to live a life style, in general. Other factors and considerations will change a person’s numbers so they differ from the chart above, such as the rate of return they receive, money inflows and extra expenses, taxes, life expectancies, etc. The assumptions are that money is growing at a real rate of return of 2.5%/ year until the age of 95 and will leave approximately a $0 balance. As those assumptions change, so will the numbers in the chart. This is calculated in today's dollars (PV).

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