Here is a simple paradigm (from a comment BenE posted) for quantifying how much a person needs to retire successfully*:
Divide your life into three thirty year periods. During our first 30 years, we have limited means for savings. During the next 30 years, we work and save. We spend the last 30 years retired, spending our savings.
To spend as much in retirement as we did during our working years, we must save half of our income during our 30 working years so that we may spend that half during our 30 years of retirement.
Read that again. Pause and reflect on that.
There’s plenty of factors that influence how much one must save. This paradigm excludes them so that the raw scale of savings can be easily grasped. Some of the most notable factors that can influence how much it is necessary to save include:
- Start saving early
- Postpone retirement
- Social Security income
- drastic reductions in living standards
- Be born to rich parents/win lottery
- Die early
- Retire at the beginning of a long bull market.
* Successful retirement is defined as not outliving ones nest egg, or as not having to eat Alpo in ones golden years (William Bernstein).