How Much You Need To Retire And Never Have To Worry Again

“How much do I need to retire?” is a question that comes up over and over again.  So once and for all, let me suggest a simple, very logical and conservative way to figure out how much you will need.


Average Annual Gross Income of Your Lifetime / Risk Free Rate of Return = Retirement Goal

In other words, let’s say you make $100,000 a year on average in your 40 year career.  All you need to do is find out the risk free rate of return (look up the latest 5 or 7 yr CD and 10-year yield and average the two), and divide $100,000 by that figure.  Since the 10-year yield and 5-7yr CD is roughly around 2.5% divide $100,000 by 0.025  to get $4,000,000, which is the amount you need to retire on.

Retirement Goal X Risk Free Rate = Average Annual Gross Income

This is the same equation, just rearranged.  If your retirement goal is $2,500,000 and it’s sitting in the bank right now, you would earn $62,500 a year for the rest of your life risk free, if you don’t touch the principle and the interest rate is 2.5%.

Current Salary X The Inverse Of The Risk Free Rate = Risk Free Income.

Finally, you can also multiply your current salary, or the realistic salary you think you’d comfortably survive on by 40 (the inverse of the 2.5% risk free rate) to achieve your retirement goal.  If I had zero debt, I’d comfortably be able to live on $50,000 a year, based on a $2,000,000 cash nest egg.


When I first wrote this basic post, the 10-year yield risk free rate was at 4%.  Hence, all one needed was $1,250,000 in cash to generate a $50,000 a year risk free income.  The Fed has telegraphed quite clearly through QE2 that they will do everything in their power to keep interest rates low, to the dismay of savers.  So what should you do?

The most obvious thing to do is to not save, but spend!  Of course, don’t spend on anything if you are looking to build wealth.  Spend your money on real assets, such as commodities, precious metals, real estate, and the Chinese RMB.  The medium of exchange, cash, is being devalued, which means the real assets by which the currency is used for will grow in value.  Take your time though, as a low interest rate environment is also a reflection of a low inflationary environment.  Sooner or later, inflation will come, but unlikely for at least a couple years.  When inflation comes, expect house prices to really start climbing again.


I’m pretty confident that if you follow any of these formulas, you will be set for the rest of your retirement life.  The theory is, if you’ve been used to living off $100,000 gross income a year for your entire life, you aren’t suddenly going to want to need more income to survive.  Furthermore, when you retire, there may be other benefits such as Social Security and no more debts to pay, which makes $100,000 that much more viable.



Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship. Sam focuses on helping readers build more income in real estate, investing, entrepreneurship, and alternative investments in order to achieve financial independence sooner, rather than later.

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  1. Ron says

    Arriving at the number is the easy part. Practical implementation is what’s difficult!
    (LOVE the picture — that had me laughing this morning!)

  2. says

    Sam- as your post pointed out, it can be hard to come up with a set number since interest rates and other variables can change. However, one thing these low interest rates have taught us is to not underestimate how much we will need. If the new benchmark is 2.5 percent vs. 4-5 percent, then hopefully it will force people to save more instead of retiring prematurely and running out of cash too fast.

    I don’t have a golden number at the moment for when my husband can retire. We do max out our retirement plans and we are aggressively paying down our mortgage. We are not in a huge ‘accumulation’ phase because of our expenses with the kiddos. Two of our kids will be out of college when the mortgage is paid off, so we will start to really accumulate money then. We just put away what we can now.

    • says

      You’re right. This low interest rate environment is killing savers! That said, it simply means we need to invest in other assets besides cash.

      I’d love to read a post about the cost of your kids and how you think about balancing your savings and providing for them.


      • says

        Sam, if people knew what I really spent on my kids, men everywhere would be running to get vasectomies… :)

        I will have to think about putting a post together. Thanks for the idea!

        • says

          In response to Sam’s question about women and vasectomies:

          Well, last time I checked, women cannot get vasectomies…:)

          Let me tell you a little story. I was at the doctor’s office one day and I was sitting on the little table with paper on it waiting to be seen. The doctor popped in real quick and said “I will be right back, I just have to do a quick vasectomy”. I don’t know exactly how much time passed, but it was not very long. I am sure that man went home to watch a weekend’s worth of movies with a bag of strategically placed frozen peas.

          Compare that to what women go through having babies and everything else. That is why men should get fixed instead of women.

  3. says

    If anything, these formulas are great for perspective. The vast majority of Americans have nowhere near this sort of nest egg, nor are most on track to do so. Fortunately, what wasn’t include though, is SS and pensions. While neither of these should be expected to pay out at the same rate as many people are seeing now, in present dollars, a typical worker that made the $100,000 you cited above might reasonably expect a few grand a month between the two. That very much bridges the annual income required from the nest egg in cash.

    • says

      Absolutely agree. Finding out that actual number can be a huge reality check for some savers. Always better to know what you’re up against rather than merely hoping that you’re saving enough and to assume that you’re on your own than relying on some big “maybes” (SS & pensions).

    • says

      Perspective is good, and yes, I purposefully don’t include anything else except cash b/c everything else is unreliable. If it’s there, it’s there and will bridge that gap. If not, doesn’t matter b/c you weren’t expecting it.

  4. David M says

    As we all know there are many factors that would impact the “correct number”.

    The first being do you want to leave money to other people when you die – I personally do not – thus the amount that I would need to accumulate might be much less than other people.

    Also, do you want to keep the money yourself or are you willing to purchase an annuity with all or some of your money. Again, I am willing to purchase an annuity and thus again, I think I would need less money than other people.

    Will you have an income stream other than from your investments – I HOPE to have a defined pension plan – thus I think I need to have less $ accumulated than other people.

    I’m not going to worry about how much I NEED to save. I’m just going to save as much as I can and prior to retirement, I will look and see if I think I have enough money. If yes, I will retire. If not, I will look at it again and hopefully I can get things to work – if not, I will continue working.

    • says

      Why not leave some money to your family? Trust funds can be a great insurance yes?

      I hear you though, and I actually believe people die with TOO MUCH money as they don’t spend balanced enough.

  5. Olga says

    Hello, how to accumulate so much money, ??? it seems impossible ! We have to pay for our mortgage, the kids education, food, taxes, bills….and what I can manage to put aside is not enough to get 2M when I retire. (sorry for my english)

    • says

      I think if you work 40 years, I’m sure you can accumulate $2 million if you save diligently! However, I don’t know your finances, so I really have no idea.

      $50,000/yr is $2million gross, which means you’ve got to have some rate of return to get you there.

  6. says

    I don’t make calculations for retirement yet. I’m in my accumulating phase and later I’ll worry about a number goal. I’m constantly evaulating my situation and knowing that I can max out my Roth IRA and then do some investing will put me ahead of my peers when it comes to putting some real money in there.

    My goal isn’t to stop working forever. The goal is to do something you enjoy at the youngest age possible.

  7. says

    I use a calculator (called The RC) that I made on my own and have available to download on my website that tells me exactly how much I’ll have when I retire, and how much I can spend. Right now, I’m hoping to have at least $5-7 million when I retire at 68

  8. says

    As guidelines these numbers are pretty decent. I don’t think anyone will actually put their entire portfolio in treasuries (and it’s not what I would personally recommend either), but this also shows that if you can reduce your fixed expenses, you don’t need as much income. Saving early on is important because it lets your money compound. Finally, if you can pick up assets on the cheap, then why not?

  9. says

    If you invest in index funds and are willing to take valuations into consideration when setting your stock allocation (that is, to avoid following a Buy-and-Hold approach), you can count on a long-term return of something in the neighborhood of 6.5 percent real. Even being extremely conservative, you could assume a return of 5 percent real. That means that you only need to multiply your annual spending number by 20 to identify the amount you need to finance a retirement that will last forever.


      • says

        Does it have to be every year? Over the past 20 years as we’ve had all hell
        break loose the market has averaged 8%/year.
        This year, a diversified portfolio of low cost index funds is up 11%. CDs,
        Treasuries etc. aren’t getting it.
        If that’s where you guys are putting your money then you’ll definitely need
        $5 million to retire.

  10. says

    All these retirement calculator are flawed because everything is based on how much you make. The calculator assume “you’ve been used to living off $100,000 gross income.” What if I make $100,000 a year, but only live off $40,000 and the rest goes to saving and tax? Pretty much everyone reading this site are prolific saver and we need a retirement calculator that look more at the annual expenditure.

    • says

      That’s true, but why not use $100,000 as a CONSERVATIVE figure to base your calculations on? That way, if you fail to achieve your target by 50%, you are 100% spot on good!

      I never recommend someone overestimate their savings and return abilities for retirement.

  11. says

    I agree with retireby40…one key thing that many people forget when figuring out how much they want annually in retirement is that you don’t need to save as much.

    If you’re in retirement, you should already have saved for retirement, so there’s no need to dedicate 15% of your earnings towards retirement anymore…you’re already there! Also at this point hopefully you’ve been able to pay off most of your mortgage debt and you’ll only be paying real-estate taxes, HOA, and insurance.

    • says

      Yep, agreed. If you’re retired, you don’t have to save for retirement! I’m just being conservative, as it’s always better to be conservative just in case and work off those figures.

  12. Sandy @ yesiamcheap says

    Dude, I don’t make $100,000 now and I have a family of 4 adults. So if I was to retire without these bloodsuckers and my bills were paid off? I can so make it comfortably on $40K. I’m cheap as possible.

  13. says

    Although I’ve been saving all along for retirement, I’m nowhere near the numbers I need to be due to crappy returns in the market. In addition to saving, I’ve been focusing more of my efforts on reducing expenses. If I take away mortgages and daycare, I’d need $35K less/year to live on. That would impact my number more than saving an extra 10% of my income.

  14. says

    I pretty much use that exact same method in estimating how much I’ll need in retirement at a minimum. The only difficult part is that what I actually will end up wanting may vary quite a bit — depending on how inexpensively we’re able to travel, etc.

  15. says

    While a reference back to pre-retirement income is a useful sanity check, I prefer to focus on estimating expenses – starting with tracking pre-retirement expenses for a few years and then adjusting to reflect expected changes in expenses post retirement. In my own case, I concluded very quickly that my expenses would go up after retirement – more travelling and more time for vices.

    I also spend a lot of time stress testing my portfolio by asking what impact various events could have. A repeat of the current financial crisis? A revisit of the high inflation years of the 1970s? Higher taxes? FX fluctuations? Etc.

  16. The Rat says

    I think the formula you’re using is pretty conservative and although I think it is useful, I think a lot of people will require less for retirement purposes (assuming they are debt free and perhaps own their principal residence, etc.).

    The method I use revolves exclusively around cash flow. For example, because my house is paid off, I know exactly how much cash outflow is required on a monthly basis for utilities, property taxes, insurance, vacation plans, average food expenses, etc.

    After all that is taken into account, I determine how much positive cash flow is derived from dividend and interest producing investments and subtract that from my monthly expenses.

    The higher the number, the closer you are to retirement. I think cash flow is king and I believe a lot of people think they need a massive lump sum of change in order to retire and draw from it from year to year. There are ways to preserve the principal while still maintaining the same cash flow on a consistent basis. Personally, I think having a combination of non-registered and registered accounts (RRSPs in Canada, 401k in U.S.) will give balance from a liquid cash flow and nest egg standpoint.

    Overall, I think everybody’s situation is different. Some people have several kids and large families, and require more money. Others decide not to have kids, and that changes things in a major way. Some want to live the high life and having hot wheels is equally important than the home they live in. On the other hand, there are those that live a more frugal lifestyle and save cash by buying bulk, walking to the grocery store, take public transit, etc. and maybe even have no choice but to do so. All of these factors will affect how much they will need for retirement.

    Nice post!

  17. says

    interesting thoughts . . . for me, it is the guaranteed income (cash flow), not so much a lump sum balance, to sustain the lifestyle i want/need to (due to healthcare, etc). this can be income from the passive streams i have established over the years.

    it just so happens that because the cash flow can be a result of the lump sum balance (.e. interest on a fixed depo), i sometimes think of it as how much base capital i need to generate the guaranteed income discussed above, with the principal passed on to my estate or charity upon death

  18. says

    Great post, Sam! If I earn as much as I earn today, in 10 years I could cover all my expenses from interest only. Assuming my income will grow over the years, via promotions, bonuses and compound interest, I hope would end up financially free at age of 34. I won’t own millions by then, but I will work for fun and have more free time to spend

  19. says

    Good formula indeed, to do math about retirement requires hard work, though it may seems need to exert a lot of effort, the important thing is stay focus and love the things you do. Therefore, when we retire we will end up happy and fulfilled too.

  20. Cory says

    You’re not accounting for inflation in any of these cases. That $50k/year will not get you as far by the time you’re 80 versus when you’re 60. Most of the time, CD’s yield very little over the rate of inflation. So if you’ve got a $1M nest egg with 3% annual inflation, and your CD is earning 3.5%, living off that 3.5% you’re earing from your CD is actually decreasing the intrinsic value of your nest egg.

      • Cory says

        I agree that it will be more than enough. Your post just seems to suggest that you can continuously live off the interest, which is misleading.

        Personally, I like to calculate a minimum retirement goal, and know that I have to do whatever is in my power to be above this mark. I guess worst-case (or best-case?) I’ll live to 90, and retire at 55. That’s 35 years of retirement. I’m guessing I’ll live comfortably with $50k cash in retirement in 2010 money. Considering I’m 26 now and have 29 years till retirement, and with an average of 3.4% inflation (238% after 29 years), the first year of retirement I will need $119k cash. I’m also assuming that after retirement, I will keep this nest egg in CD’s or bonds that will grow at whatever inflation is (a conservative estimate, any growth beyond inflation is great). This will negate the effect of inflation on my nest egg, so I can simply take that $119k times the number of years I will be retired. $4.17 million as a bare minimum for me to retire and live comfortably.

        • says

          My calculation assumes that once you die, you still have your full income generating principle amount. Hence, if you were to actually draw down the principal during retirement, you’d have even more money!

          How do you know what the future inflation rate is and what do you do for a living?

  21. says

    Interesting formula, but I’m with the Rat on this one.

    I don’t think we need to replicate annual salary as it doesn’t take everything I make to live on. Without debt and 401k contributions, it’ll be a lot less.

  22. says

    It’s almost impossible to get even close to what one really needs so I definitely agree with you to save up more than you think you’ll need. No one knows what interest rates and tax rates and structure the future holds. I like your method of calculation though. I’m anxious to calculate what we will need to but planning your life financially too as I haven’t really done it yet. I agree with you too about how it’s hard to count on anything but cash but if you don’t, it’s really difficult to meet your retirement goals without having the rate of return potential in stocks and other investments.

  23. says

    Sadly I am behind and need to clear my debt first but I also don’t plan on giving up blogging or whatever it has evolved into during my retirement. I reckon $40k-$50k or it’s equiv in 40 years will suit me just fine so I need to start sorting that out as soon as the big bad debt stops knocking on my door.

  24. says

    I agree with being conservative in these estimates. I am a bit of a chicken, the amount I would need to “stop worrying forever” is really large. But I realize nothing is certain in life. Accepting some risk is reasonable. I also have no problem with the idea of continuing to bring in income. I hope to have some rental property brining in income. I hope to have some web properties brining in income. And hope to have investments bringing in income.

    It is important to think about the long term. Today, interest rates are so low, I can’t imagine them getting significantly lower. So your calculation makes sense. If 10 years from now, interest rates are at 9% and someone does the calculation they need to consider interest rates may fall! Look at what happened over the last 20 years.

    Also lets see if 20 years from now you think people worried too much about inflation. My guess is the answer will be no, they didn’t worry nearly enough. But we will see.

    • says

      The good thing is, everything is correlated. If inflation is 9%, the banks will pay you 10-12% interest on your savings, and CD/bonds/treasuries will be higher as well.

      Build the nut is all that matters! Everything else is just bonus.

  25. says

    “What type of formula do you use to calculate your retirement goals or needs?  How much do you guys need to stop working forever?”

    I believe that you were on target in your About blog entry, when you said that “fun followed by purpose is the essence of everything”. Therefore, I personally don’t intend to “stop working forever”. We all seem to need to contribute to worthwhile endeavors – and typically we call those work.

    That said, both my spouse and I are ‘retired’ from our respective salaried careers – devoting ourselves to our own choice of endeavors.

    Our considerations in deciding that we could retire included
    a) understanding our current expenses
    b) living on a cash basis (no debt, not even a mortgage – which means a smaller house)
    c) understanding what we wanted our lifestyle to be in ‘retirement’
    d) verifying that we would have enough income from investments, retirement plans and etc. to cover our expenses and lifestyle choices without dipping into principal amounts
    e) continual vigilance to combat inflation (we lived through the ’70’s inflation era – having no cash and no salary increases while prices spiraled up was no fun!).

    As far as never having to worry again….the confidence we earned through years of striving, earning, learning and scrapping through situations tells us that if we need to, we can and will get back in the salary game.

  26. says

    I really don’t know. I’m at my early 20s so I doubt if I need to consider my retirement now. I know that I have a bright future ahead of me. Considering my age and how everything move according to plan, for sure, I can retire without any worries at all.

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