How Much of Your Income Can Be Saved Depending on When You Want to Retire
There is no one size fits all approach to retirement savings. If you want to retire before the traditional retirement age, this Financial Freedom Fund calculator will tell you how much to save.
Robert Berger explains the math behind this in Forbes:
The mathematics behind the Financial Freedom Foundation is a simple two-step process. First, we need to calculate how much investment we need to generate enough income to fund our living expenses. Second, we calculate how long it will take to achieve this goal based on our current saving rate and estimated rate of return. With this information, we can adjust our savings rate based on when we want to retire.
The table suggests scenarios for rates of return ranging from 5% to 9% and rates of savings from 5% to 95% (in 5% increments). So when you look at the spreadsheet, you can see that if you want to retire in about 30 years and your investment returns an average of 5%, you need to set aside 25% of your income. Use this link to make a copy of the Google Spreadsheet and edit it yourself.
The table assumes a 4% withdrawal rate at retirement and you want to fully refund your income upon retirement. You may well live less when you retire, but it doesn’t hurt to overspend, and at the bottom of the table, you can enter different numbers for your retirement income, withdrawal rate, and return on investment.
I love that this calculator takes your current savings into account and shows immediately how much earlier you can retire if you increase your savings a little or if your investment only brings in one percent more.