How Much Money Will You Need to Retire?

This post uses the 4% withdrawal approach to estimate the savings that you will need in order to supplement your Social Security retirement income; the amount needed is expressed as a simple multiple of your salary. In doing so, it assumes that you will retire with full Social Security benefits. Just find your salary on the horizontal/”x” axis, and then look up the savings required on the vertical/”y” axis. For example, at a salary of $50,000/year you would need a bit more than 8 times your salary in order to generate enough income to supplement your Social Security income during a 30-year retirement. 

This post paints the big picture, using some simplifying assumptions. A companion post, my interactive retirement calculator, allows you to tailor the assumptions to arrive at a more individualized estimate of the retirement savings needed (for example, if you do not qualify for Social Security). That post will also help you calculate the yearly savings needed to accumulate the desired amount by your retirement date. (For more on this approach and my assumptions, see later in the post.). 

How Much Will You Need to Retire?

How Much Money Will You Need to Retire?

With an Average Salary, You'll Need Over 8 Times Your Ending Salary to Retire Comfortably! 

If you follow the 4% withdrawal guidelines, it's easy to estimate how much money you will need when you retire. Basically, you will need (100%/4%=) 25 times the amount you expect to withdraw from your savings in your first year of retirement. To facilitate the computation, I have assumed that your total yearly spending in retirement will equal 75% of your ending salary – and that, adjusted for inflation, your ending salary is the same as your current salary. 

However, as you can see from the graph above (click to expand), at $62,500 -- around the average salary in 2020 -- the target is only about 8.5 times your salary. Why isn’t it 25 times salary? For two reasons: a) we are only replacing 75% of the salary, and b) because of the impact of Social Security benefits. 

 The Effect of Social Security: The Larger Your Salary, the Higher the Multiple You Will Need to Retire 

Using the 4% withdrawal strategy, the savings target for those who will not receive Social Security is (100%/4%=) 25 times their expenses. Assuming their expenses are 75% of their salary, that target is therefore (25 x 75%=) 18.75 times their salary -- regardless of salary level. The reason the line of the graph is not at 18.75 is because of Social Security. If you will receive Social Security, you will need less than 18.75 times your salary to fund your retirement. 

In the graph notice how steep this curve is at the lower salaries, and how flat it is at higher salaries. The percentage of your salary that Social Security will replace decreases as your salary increases. Whereas Social Security will replace 90% of the salary of the lowest income workers, Social Security will replace only 14% of salary for a person making $250,000, and 7% for those earning $500,000. In fact, the more millions you earn, the closer the percentage gets to zero; we should all have such problems.... 

The bottom line is that as your salary increases, the amount that will not be replaced by Social Security increases; therefore, the retirement spending that must be funded by your retirement savings increases -- and, the salary multiple on the graph increases. 

Some Key Assumptions 

The 4% withdrawal approach was developed assuming that you will spend about 30 years in retirement, and that your retirement savings will be in a diversified (stock and bond) portfolio. To simplify the calculations, I've further assumed that:

• Social Security benefits and your salary will both keep pace with inflation
• You will retire at the Social Security full retirement age, receive full retirement payments, and have expenses of 75% of your current annual income (inflation-adjusted) in your first year of retirement
• You will follow the "4% Withdrawal" guidelines, starting by withdrawing 4% of your assets your first year in retirement and increasing with inflation each year thereafter.
• Your retirement portfolio will earn a real (i.e., after inflation) return of 5%/year

Be aware that, because I have assumed zero inflation, if the chart says that you will need 8 times your salary and that comes out to $400,000 that is $400,000 in current dollars. If your retirement date is, say, 25 years from now and inflation actually averages 3%/year, by then your salary will likely be around $100,000, and 8 times your salary will be $800,000 – which is equivalent to $400,000 in today’s dollars. 

The interactive retirement calculator will let you change those assumptions to better reflect your specific circumstances if needed. It will also estimate the annual savings needed to achieve the desired savings goal. For a more detailed discussion of the 4% withdrawal approach and my assumptions, see Assumptions for the 4% Withdrawal Retirement Graphs.        

Related Posts

Social Security Income Estimator : the official site.  For an approximation, see this site, or my graph.

Start Retirement With a 4% Withdrawal Rate A discussion of the 4% withdrawal concept, from Time Magazine. For a more detailed discussion, see Wikipedia.

Inflation Calculator if you want to translate the required savings from current dollars to the equivalent amount on your retirement date

How Long Will You Live? A look at one of the most vexing issues in retirement planning.

Do You Need a Personal Strategic Plan?: a process for establishing life priorities

For lists of other posts, by category, see the drop-down list (mobile viewers) or tabs (computer viewers) just below the blog header at the top of the page. There are additional links in the sidebar if your device supports sidebars.
Copyright © 2020 Last modified: n/a

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Back-of-the-Envelope Retirement Savings Calculator

This is my really simple "back-of-the-envelope" retirement calculator. It reduces retirement planning calculations to the bare minimum.

Accounting for all of the variables in retirement planning requires a complicated model. In this post, I've made some simplifying assumptions. I've tried to develop a "bare bones" model so that we can focus better on the big picture, and still get results that are useful.

The Observations Back-of-the-Envelope Retirement Savings Calculator

Notes: Enter data only in the peach cells. You can use the arrows and sliders on the side and bottom of the calculator to scroll. On some phones you may need to double click to enter data; it may also be helpful to switch to landscape mode. On some computers, you may have to enter some fields more than once for it to "take." 

Please leave a comment if you are having problems.

How Much Money Will You Need to Retire?

The key simplifying assumption was to estimate the savings you will need at retirement using

Do All Black Lives Matter?

Too many people are now suggesting that while there are huge outcries within the Black community when a Black man or woman is killed by a white person – especially a policeman – the community seems not to care about Black on Black murder victims. “Why is that?”, they ask. Shouldn’t all Black lives matter? Spoiler alert; they do.

One reason some crimes result in smaller outcries within the Black community is because all communities find some homicides more outrageous than others – it’s human nature. However, being “less outraged” by a particular person’s death does not mean that you think that person’s life is less valuable – that his or her life matters less. The extent of one’s reaction is usually more a reflection on the how and why of the death than on the “worth” of the deceased. So, for example, we are saddened when a baby drowns; we are outraged if it drowns at the hands of its own mother. Clearly neither baby’s life is less valuable than the other; it’s the same baby.

Some factors affecting the decibel level

There are many reasons why some homicides are mourned or protested more loudly, or broadly, than others– for example…. 

I’M BACK!

As some of you may have noticed, I have been on an extended vacation from blogging. During that time, I had fun doing all kinds of things that it is no longer safe to do…. So, what is one to do when just going outside can put your life at risk? Stay inside and blog, of course! The current plan is to tidy up some of the existing posts, and broaden the topic areas covered in future posts; that could change.

Clean-Up

Over the next month or so I plan to tidy things up a bit. I hope to fix the broken links to web pages of years past. In addition, Google, Blogger, and others have made some technical changes that have negatively impacted the blog. I’ll try to clean that up too.

Some other posts are technically fine, but the data needs to be updated. A prime example is the calculator that computes inflation from any year in the past (beginning in 1900) to “now.” It uses the CPI-U at the beginning of each year to do the computation. I need to add recent years. Unfortunately, I suspect some legacy posts may prove too difficult to bring up-to-date to be worth the effort that it would take to do so. We’ll have to see.

{October update: This is waaay more work than I ever imagined. It will take at least six to twelve months to get everything updated! If you want to be kept up-to-date on new and updated posts, follow me on Twitter at @Obsandnotes } 

Broader Focus

Finally, I intend to begin posting about topics outside the realm of finance; I’ll include things which are more related to current events. In the past, I have almost always attempted to be as objective as possible in my posts and avoid expressing my opinion. In future posts, not so much.

As always, thanks for reading!

Copyright © 2020 Last modified: 10/19/2020

What Will $1 be Worth in the Future? (calculator)

This calculator:

• Converts current prices to equivalent prices any number of years in the future
• Compares purchasing power today to purchasing power in the future

Enter an amount, how far into the future you want to compute, and the inflation rate you want to assume.  Below we see that at 5% inflation for 20 years, an item that costs $100,000 now will cost over $265,000.  That means that 20 years from now the purchasing power of $100,000 will have been reduced by over 62%; $100,000 then will only be able to buy what we can buy now for about $37,000. Be sure to enter inflation percentages as decimal amounts -- that is, 0.05 for 5%, 0.025 for 2.5%, etc. 

Notes: Enter data only in the tan cells. On some phones you may need to double click to enter data. On some computers, you may have to enter some fields more than once for it to "take." Please leave a comment if you are having problems.

How Much Will Your Bond/CD be Worth in N Years? (calculator)

This Calculator Computes the Future Value of Your Bond/CD for Any Amount, Number of Years, and Interest Rate

Enter data only in the colored cells below.
Note: normal/annual compounding is once a year; semi-annual is 2 times/year; quarterly is 4 times/yr; etc. Be sure to enter interest rates as decimal amounts - 0.03 for 3%, 0.025 for 2.5%, etc.

How Much Will You Receive in Social Security Income?

(Last updated December 2020)

Social Security is a key component of most people's retirement plan. Here's a quick estimate of the retirement benefits under the current rules.

Percent of Salary Replaced by Social Security Retirement Benefits

Percent of Salary Replaced by Social Security (approx)

The Percentage of Your Salary Replaced by Social Security is Determined by Your Salary Level

The chart above (click to expand) shows the approximate percent of your salary that Social Security will replace if you take full retirement at age 66. The actual calculation is complicated, and is based upon your lifetime earnings. For these estimates, I have assumed that you earn your current salary, adjusted for inflation, for the duration of your career (all previous and future years). The point here is to see the big picture; for an estimate specific to your situation see the links at the end of the post.

Inflation Calculator: Convert Dollars from 19xx to Now

Last updated Sept. 2020

Convert Dollars From One Year to  Equivalent Dollars in Another Year
Calculate Inflation Rates Between Two Years

This calculator is especially useful for converting salaries and asset values.

The brown/tan cells are input fields. For example, enter the start and end years and immediately see the inflation rate between the two years. Enter a price and convert between the start year price and end year price (e.g., from 1900 to 2019 dollars -- or vice versa).



Notes: On some phones you may need to double click to enter data. On some computers, you may have to enter some fields more than once for it to "take." Please leave a comment if you are having problems.

What Will $100 be Worth in 10 - 20 Years?

This post estimates the future value of a dollar for the next 1-50 years, for inflation rates ranging from 1% to 10%. The chart works not just for $100, but for any amount -- $1, $1,000, $10,000, $100,000....  And, it works for 5, 10, 20, 30 ... anything up to 50 years. (This is a companion to a previous post which compares today's dollar to earlier years.)

Inflation is one of the biggest risks that current and future retirees face. Given today's life expectancies, even relatively low rates of inflation can devastate the purchasing power of a pension or uninvested cash during your retirement years. How great could the impact be? See below.

Try my new interactive future inflation impact calculator.  It does the same calculations as the graph below, but for any number of years, and for any inflation rate. Then come back to this post; graphs are still better for seeing the big picture.

What Will $100 be Worth in 5, 10, 20, 30... 50 Years?

What Will $100 be Worth in N Years?

The Impact of Inflation on the Future Purchasing Power of a Dollar

Over the last 100 years, U.S. inflation has averaged about 3%/year. As you can see from the graph above (click to expand), even at these apparently benign rates (the blue line), within 20 years the purchasing power of a fixed pension will be almost cut in half. Twenty years is not a long retirement these days; most advisors recommend that you plan for thirty. Some retirements last even longer.

How Much Money Will You Need to Retire?

**Note: There is a newer version of this post here. **

This post uses the 4% withdrawal approach to calculate savings needed to retire at age 65 for those who earn from $10,000 to $250,000 or more and will be eligible to receive full, or nearly-full, Social Security benefits.

Previous posts established retirement savings benchmarks/targets from age 25 to 65 for a typical average income worker and a typical high-income worker. This post only calculates the target at age 65, and, as a result, is appropriate for all salary levels.

How Much Will You Need to Retire?

How Much Money Will You Need to Retire?

With an Average Salary, You'll Need Around 9 Times Your Salary to Retire

If you follow the 4% withdrawal guidelines, it's easy to calculate how much money you will need in order to retire at age 65. Basically, you will need (100%/4%=) 25 times the amount you expect to withdraw from your savings in your first year of retirement. To facilitate the computation, I have assumed that your total yearly spending in retirement will equal 75% of your current salary, adjusted for inflation.

However,

How Much Should You Have in Retirement Savings? - average incomes

This post uses the "4% withdrawal" approach to retirement savings to estimate how much most people should have in savings -- by age.  And, given how much you actually have, what percent you should save going forward.

This post is designed for those earning approximately $40,000/year who are eligible for Social Security. Earn more? See higher income, or not eligible for Social Security.

Retirement Savings Targets for Those Eligible for Social Security

Retirement Savings Targets, by age

Have I saved enough for my retirement? Am I on track? Here's an easy-to-use graph to help those with earnings around $40,000/year plan for retirement. An earlier post calculated the percent of your salary you should save each year, depending upon when you start your retirement savings plan. This one provides some benchmarks to monitor your progress along the way.

How Much Should You Have in Retirement Savings? - higher incomes

This post uses the "4% withdrawal" approach to retirement savings to estimate how much high-income earners should have in savings -- by age.  And, given how much you actually have, what percent you should save going forward.

Those With Higher-Salaries Need to Save More Than The Average

Have I saved enough for my retirement? Am I on track? Here's an easy-to-use graph to help those earning $100,000 or more plan for retirement; they need to save more than the average. An earlier post calculated the percent of salary that high-income earners should save each year, depending upon when they start their retirement savings plan. This one provides some benchmarks to monitor your progress along the way.

Retirement Savings Targets for Those With Higher Salaries

Retirement Savings Targets for Higher Salaries

This post is designed for those earning $100k or more who are eligible for Social Security. Earn more? See targets for those not eligible for Social Security. Earn less? See typical Social Security recipients. Ending targets for all salary levels are covered in How Much Will You Need to Retire?

Personal Strategic Planning Development - Optional tasks

Following are some additional thoughts relevant to developing your personal strategic plan. For the most part, these address special situations, or are optional enhancements to Creating Your Personal Strategic Plan.

Create SMART Goals and Strategies

Make your goals and strategies SMART: Stretching (challenging), Measurable (so that you know whether or not they have been achieved), Achievable, Relevant, and Time-bound (i.e., set target dates/deadlines). (Note: There are many variations of what SMART means, but all are similar. See, e.g., Wikipedia).

Avoid Analysis Paralysis

Personal Strategic Planning Schematic

Personal Strategic Planning Schematic

Intros/Overviews

Do You Need a Personal Strategic Plan? A process for establishing life priorities
A Personal Strategic Plan Example: An introduction to & overview of the planning process, including examples and sample formats.

Assumptions for the "4% Withdrawal Rate" Retirement Savings Graphs

The Observations posts based upon the Trinity Study / "4% Withdrawal Rate" guidelines for retirement savings include a short version of the assumptions made. This post discusses the assumptions underlying those graphs in more detail.  (See Related Materials below for a list of the posts.)

The Trinity Study (The "4% Withdrawal Rate" Approach to Determining Retirement Savings Needs)

The Trinity Study was a retirement study conducted by three finance professors from Trinity University. They assumed that, given today's lifespans, a safe retirement portfolio should be large enough to last for thirty years. Their methodology involved simulating the performance of a variety of stock/bond allocations using actual historical market performance data. Their research concluded that the most important factor in having retirement savings last that long was a realistic initial withdrawal rate. Further, they found that for a wide range of portfolios, a portfolio would have lasted 30 years more than 90% of the time if you started with a 4% initial withdrawal rate.

How Much Should You Have in Retirement Savings? (by age)

In this post, we use the "4% withdrawal" approach to retirement planning to approximate how much you should have in savings at each age. And, given how much you actually have, what percent you should save going forward.

Have You Saved Enough for Your Retirement?

Have I saved enough for my retirement? Am I on track? These are critical questions for those hoping to retire in comfort. In the previous series, we calculated the percent of your salary that you should save each year. In this series, we provide some benchmarks to monitor your progress along the way.

Retirement Savings Targets as a Multiple of Salary: Benchmarks, by age

Retirement Savings Targets as Multiple of Salary

This post is designed for those who do not expect to receive a pension or Social Security -- regardless of salary level. Otherwise, see with Social Security, or higher income earners.

Without Social Security or a Pension, You'll Need ~19 Times Your Salary to Retire Comfortably at Age 65!

As you can see from the chart above (click to expand), no matter when you start saving, by the time you're 65 you'll need about 19 times your "then-current" salary in retirement savings! That is, assuming you want to maintain

What Percent of Income Should High-Income Earners Save For Retirement?

Here's another easy-to-use graph that suggests the percent of your income to save for retirement depending upon the age you start saving. It's based upon the commonly used 4% withdrawal approach to retirement savings, and is designed for a high income wage earner planning to receive Social Security in retirement. Earlier posts targeted a typical social security recipient, and those without Social Security.

Some Benchmark Percents of Income to Save for Higher Income Earners with Social Security, by Starting Age

Annual Retirement Savings Percentage Needed (higher income)

Most people are not saving enough for retirement! Because of the way Social Security is designed, those with higher salaries need to save an even higher percentage of their salaries than the average person. Waiting too late to start planning & saving for retirement, or not saving enough, can be the difference between having a secure, comfortable retirement and a drastically reduced standard of living.

High Income Earners Should Plan to Start Early, and Save A Larger Percent of Their Annual Salary -- Even With Social Security

The previous post in this series benchmarked savings percentages needed for a typical worker with Social Security (and no pension). Unfortunately, the percentage of your salary that Social Security will replace decreases as your salary increases. As a result, higher income earners need to accumulate more years of salary in savings by their retirement date. Therefore, they should plan to save a larger percentage of their income than those with average salaries in order to reach the higher targets.

What Percent of Your Income Should You Save For Retirement? (by starting age, with Social Security)

Here's an easy to use graph that suggests the percent of your income to save for retirement depending upon the age you start saving. It's based upon the commonly used 4% withdrawal approach to retirement savings, and designed for a typical wage earner who is planning to receive Social Security. Other posts address saving percentages for higher income earners, and those without Social Security. For other situations, see the end of this post.

Most people do not save enough for retirement. Sixty percent of older women have trouble covering their basic monthly expenses. Nearly half of Americans die with virtually no financial assets. Waiting too late to start planning & saving for retirement, or not saving enough, can be the difference between having a secure, comfortable retirement and spending your golden years in poverty.

Some Benchmark Retirement Saving Rates for Typical Employees with Social Security, by Starting Age

Annual Retirement Savings Percentage Needed (w Soc Sec)

Even With Social Security, You Will Need to Start Early, and Save A Significant Percent of Your Yearly Salary

The previous post in this series showed results for workers without a pension or Social Security. However, about 90% of American workers do have Social Security; it typically replaces roughly 40% of their pre-retirement income (not the at least 70% of pre-retirement income normally assumed to be needed). Even so,

What Percent of Your Salary Should You Save for Retirement? (by Starting Age)

Here's an easy-to-use graph that suggests the percent of your salary you should save for retirement depending upon the age you start saving. It's based upon the commonly used 4% withdrawal approach to retirement savings, and is independent of your salary. Waiting too late to start your retirement planning & saving, or saving too little, can make the difference between having a secure, comfortable retirement and spending your golden years in poverty.

What Percent of My Salary Should I Save for Retirement? Some Benchmarks by Starting Age

Annual Retirement Savings Percentage Needed

Note: This chart is for those who do not expect to receive Social Security. See also Percent to Save With Social Security, saving percents for higher income earners, and the final section of this post.

Start Saving & Investing When You Are Young, And Don't Invest Overly Conservatively

This graph (click to enlarge) proposes some benchmarks for those planning to retire without a pension or Social Security. While your specific circumstances may differ from what I have assumed (see "Key Assumptions" below), they won't change the basic messages that I think this chart sends, namely:

• The earlier you start planning & saving for retirement, the better off you are (i.e., the less you will need to save each year)

Using Your Android Phone GPS to Find Friends in a Crowd

How do you find your friends in a crowd of 75,000 people?

DRAFT

Tailgating at the Texans - Packers Monday Night Football Game

The Houston Texans have sold out every game in their 10-year history. Thus, the Texans-Packers Monday Night Football game will have over 70,000 football fans in attendance. Thousands of additional fans bought "tailgating" tickets, which admit them to the parking lot, but not the stadium itself. How do you find someone in that mass of humanity?

Don't Rely on Your Cell Phone

If you do not arrive at the parking lots with the rest of your tailgating party, finding them somewhere amidst 75,000 fans can be a problem. Under normal circumstances, you'd just whip out your handy cell phone and have them give you directions and describe key nearby landmarks. Unfortunately, this method may be problematical in this situation.

A crowd of 75,000 people in such a constricted area may well overwhelm the local cell phone tower capacity -- even with the additional capacity that the league trucks in for the occasion. It's very difficult to