How much do you need to retire?

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).

  • Erik

    thought about this already years ago (now 35) but in the last 30 years my guess is that you dont need the money we earn now, becouse the house is paid and the kids are on their own !

  • Those sound like the words of a person who lives in a country with employee pensions and reasonable health care costs. Here we have a mix of pensions (phased out about 1990) and 401k savings plans. The latter have crushed the retirement plans of many that retired in the past decade. Many retirees have been forced back into the workplace. It’s very hard right now to live on the returns generated by savings.

    We also spend twice as much on health care per person as other developed countries. That would be tolerable if our outcomes were better, but they aren’t. Most of our lifetime health care costs arrive at retirement age, so as mortgage payments go down, medical expenses go up. Which is why our Medicare costs are soaring.

    As we age, the costs of maintaining a home go up. It’s harder to do basic maintenance, so despite having extra time, much of the household work gets hired out. Then our health deteriorates to the point we can’t live on our own. We can move in with family or pay $3,000-$8,000/mo for a managed care facility. A $100k nest egg (the amount saved by the 70% percentile baby boomer) doesn’t last long.

    Then factor in the loss of buying power due to inflation, and the net result ends up being very, very close to the rule of thumb. In short, if you aren’t saving 50% of your income now, you will be faced with a dramatic reduction in standard of living later in life. Or you’ll be working well into your golden years.

    Of course, most Euro countries are saving much more than we are, through higher taxes that cover the costs of the social welfare programs that make these problems much less severe. It’s smart public policy.

    • erik

      The grass looks always greener on the other side of the fence I guess.
      To enlighten you, our state pensions are only about 700Euro(one person)~1000Euro(2partners) a month for which we pay 52% income tax. What’s left of our income we have to spend against 21% sales tax and a every year increasing -mandatory- medical insurance. (total about 250euro a month for basic care, no dentist or ‘extra services’)
      And how about 8% ‘transfer tax’ on houses? or more then 40% on cars, and about 8Dollar for a gallon of gas!
      I prefer the idea from the states where -you- can decide how you can spend your money and be responsible for your self and family.
      There is really little left over for savings!
      But then again we do have very nice medieval canals.. 🙂