# How Much Do You Need to Retire?

It’s a tough question and a lot of us just push it aside until it’s too late because it’s overwhelming to try and predict the variables and projections that far out. The challenge is true, but it’s a lot easier than you think to get started with a ballpark answer.

Calculating How Much You Need
Simply sum your monthly expenses, annualize that, and multiply by 25. That’s your target portfolio on which you’ll survive off of 4% annual withdrawals to cover all expenses until the end of your life. For example, if you live off of \$100K a year, then your target portfolio is \$2,500,000.

This rule is based off of research by William P. Bengen. His research looked at a portfolio’s ability to withstand consistent distributions against real time stock/bond market returns (with volatility) and inflation.

Knowing your target portfolio is powerful because it puts you in control of your own financial freedom instead of the typical “I’ll retire at 65”. Do it when you want to by developing and sticking to a portfolio contribution (savings) plan and asset allocation of diversified stocks and bonds.

Developing a Savings Plan
Coming up with a savings plan is just as easy thanks to a concept called the time value of money (Khan Academy will explain this a lot better than I can). Here’s a calculator with some basic definitions below to help you with the inputs. Whatever your savings number is, take advantage of all your different accounts to increase your efficiency (401Ks, IRA/Roth IRAs, and/or normal brokerage accounts).

Present Value (PV) -How much you have saved toward retirement today, including 401K, IRA, Roth 401K/IRA, regular brokerage accounts, excess cash

Payments (PMT) – Leave this empty, it’ll be your periodic contribution to achieve the target portfolio. This is what you’re solving for.

Future Value (FV) – Your target portfolio value (don’t worry about inflation, the 25x rule already accounts for this)

Rate (I) – This is your projected portfolio growth rate. It’s likely your portfolio will go from aggressive to more conservative over time but will average out to be ~60% stocks and 40% bonds. See long term historical averages for this type of portfolio and use that as your growth rate. Keep in mind that this is oversimplification, but a necessary to get the ball rolling.

Periods (N) – This is for how long you’ll continue to save. Play around with this until you feel you’re at a point which is doable and reasonable.

Compounding – Most of us save monthly, choose monthly. If you want to make a lump sum payment at the beginning or end of the year, choose annually (I would not recommend going this route of savings unless you don’t have an option).