How much do I need to retire?

One of the biggest questions for anyone contemplating retiring early is how much money do I need to retire?  Even if you don’t want to retire early, it is useful to know at what point do you become financially independent?

To figure this out you need to know how much you spend – or how much you want to spend when you are retired.  When I first started this journey I always did my retirement sums on my income and figured I’d have to be working forever to generate that kind of income from my investments.  However, the reality is that you only need to generate enough income to cover your spending without eating into your stash.

Reddit has  a good summary answer to this question:

The short answer: 25 times your annual spending (with caveats)

The long(ish) answer: In 1998, three professors at Trinity University released what became known as the Trinity Study. The study examined the U.S. stock and bond markets over every 15-30 year return period between 1925 and 1995 (the data was recently refreshed in 2009). They concluded that by starting with 4% of your portfolio, and withdrawing that amount (increasing yearly with inflation) every year, you would have a 96% chance to not run out of money during a 30 year period.

  • Assumes only a 30 year retirement period. Longer retirements likely need a lower withdrawal rate.
  • Assumes a mixture of stocks and bonds
  • Assumes $1 in the bank account is “success”. So some 30 year periods had lower ending balances.

4% became known as the “Safe Withdrawal Rate” (SWR). The nature of the stock market (and historical returns) means that in most cases, the portfolio grew faster than the withdrawal rate. 4% of a portfolio is the amount you can withdraw, or reversing the math, 25x your withdrawal amount is equal to the amount you need to save.


  • I need $40k in retirement. Therefore I should save (at least) $40k*25 = $1M
  • I have $1M in my retirement accounts. Therefore I can spend $40k yearly ($1M * 4%) for ~30 years.

A couple great articles on this topic

The Trinity Study was based on US data but it seems to hold true for the NZ market as well.  I’m personally quite risk averse so I’ve been doing my sums on a 3% SWR and am hoping to reach a point where even a 2% SWR becomes viable.

A handy tool to test various scenarios is FireCalc.  FireCalc tries to answer this question:  “With what you have today, and what it costs you to live, can you retire and maintain the same lifestyle?”

I recommend you work out how much money you need to live at your desired lifestyle level and start working towards it.