Million Dollar Poverty: How Much Do You Need for Retirement?

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What is retirement? What is Financial Independence? I always think, what would I do if I get retired? Will there be no work? I like working and I enjoy my career and I like building products and businesses and working with Startups. Retirement is not about having Million Dollar and still not being fulfilled. However, retirement is all about having options. It’s been about being able to say “NO”. Its been about having the F-You Money and Freedom it provides. It’s about having a choice. How much do you need for retirement?

If you read my earlier post about reading, you know, I am an avid reader and love listening to audio books on audible and you can find me with my Kindle Reader immersed in reading. I came across the book The Simple Path to Wealth written by JL Collins and my perspective about creating wealth and retirement has changed. He has beautifully outlined the simple roadmap to Financial Independence and a Rich Free Life. From his book, I learned that you need to have your assets created so that you can withdraw and live a rich free life and which is really obvious. So, I started digging more to understand what is that we need to have in assets for retirement. What is the safe withdrawal rate for retirement and what are the things you should do to test at your specified number?

There are tons of articles, blogs, and books available out there on how to figure out the required retirement wealth. I have been going through different blog sites and reading several books and checking which one is best suited for me. Here is how it looked like. What I meant was, you didn’t miss much. It’s all same everywhere. I will try to put some highlights what I learned and walkthrough strategy built upon the most data-driven, and academically well-researched approach for foundation out there.

What Is It That Matters in Retirement Strategy?

What I learned that, at the heart of the retirement calculation, it is important to understand how much you can take out what you need for as long as you would need without running out. This is very tricky and each variable you introduce could be very sensitive if you go wrong about having investments grow at 4% or 5%. This is very small change over a period of 10 years but it would be huge over the period of 50 years.

For Year 10: 100k USD growing at 4% would be worth 148k USD vs 163k USD growing at 5%, whereas for Year 50: 100k USD growing at 4% would be worth 711k USD vs 1.15 million USD growing at 5%.

Exactly, this is the reason many experts want to focus on the strategy of the perpetual draw. With this calculation, one can determine how much he can take out or withdraw without eating into the principle of the total invested nest egg. There is nothing more horrible watching your total nest egg shrink as you grow older and hoping your nest egg outlast you as you age.

So, it is better to keep enough to live off withdrawal rate. This sounds great, right?

Trinity Study: Academic Research

There are various Early Retirement Ninjas who have done work for us. Trinity Study is the great-grandfather of retirement research, for inspiration. The Trinity Study was a research paper published in 1998 and updated in 2009 by three professors at Trinity University. They looked at portfolios of stocks and US Government bonds over 30 years (i.e. 1926-1956, 1927-1957, etc) data for which they had data, and concluded that a withdrawal rate of 4% each year would likely to take you through the retirement without your portfolio going down to zero.

Of the all available data points, a 4% withdrawal rate (indexed automatically to inflation as defined by the Consumer Pricing Index) would have successfully carried the family over 30 years period.

Graph Created by based on Trinity Study Data

The Takeaway

4% is the nice starting point based on the research and historical data. There will always be risks, but only two failure points (1965 & 1966) of the data set of all these samples. It is actually a worst case scenario in the 65 year period covered in the Trinity study. That’s pretty great.

The time period, the Trinity Study used was calculated i.e.1926-1995, and the compound annual growth rate was 10.6%. The most recent years were worse. From 1996-2015, the compound annual growth rate was 8.2%.

What I understood is that, in most cases, the people owning the portfolio could have taken out 5, 6, 7% per year and done just fine. Most of the time taking only 4% meant at the end of the days, we would be left with buckets of money on the table for our heirs. However, many believe that most people don’t like to think too hard.

The negative trending years are only appearing on the back end of a full retirement period when retirees will have much less need rather than at the beginning of the period. That understates how much negative impact they could have for a retiree like you and me if we were to retire into a period that looked like the 2000s. Another important point is that with the current medicines and increased mortality rate, there is great chance that we will live longer than the 30-year retirement timeframe the Trinity professors studied. This is especially true if we are aiming towards early retirement like me and as the readers of this blog.

It was concluded that 4% is more appropriate withdrawal rate, the inflation-adjusted rate that we can draw on our net worth with reasonable confidence that it will not deplete the principle. Withdrawing 4% or less annually is as near a sure bet as anything in this life can be. 

How Much Do I Need to Retire and How To Calculate?

With our foundation in place, we can now get right into calculating how much we need to retire. Let’s see a couple of real-life scenarios:

Just take the annual spending level, and multiply it by 25. That’s how much, you and I would need to retire, at the most. A $30,000 (approx. 275,000 SEK for people living in Sweden) spender like me needs $750,000 (approx. 6,8 million SEK). So, I need to work towards that, plus to consider various safety margins in the lifestyle.

Different people have different expense structure when they retire. People may think of traveling to dream destinations, spend time in luxury hotels. People get older, wiser and more likely to break and need comprehensive medical care. Some people may support their parents when they grow old and contribute to their medical care. It all depends on where you live and how you live.

Most folks find they can actually decrease their net spending in retirement, even if they want to do things like traveling the world. They have the flexibility to take advantage of last-minute deals or off-peak specials when everyone else is at their workplace reporting for duty.

For some folks with kids and parents, expenses are a bit on the higher side. Then, just take that pre-tax number and divide by a 4% withdrawal rate. If you expect to need $50k a year, you would take $50k/0.04 = $1.25 million nest egg.

Check your expenses and figure out what is the right target for you.


What is your target range? It all depends on where you are living and what is the rate of return on your portfolio. Share your numbers in the comments and let me know what are your thoughts.


There are many big brains in this retirement space, I would like to mention four who helped much of the content in this article.

  • The Trinity Study professors who have created excellent work which is at the center of intelligent conversation around retirement and safe withdrawal rates today.
  • The Simple Path to Wealth by JL Collins and his blog provides valuable information regarding good finance and wealth creation
  • Wade Pfau of who writes excellent, very much detailed and complex retirement articles
  • Mr. Money Mustache, one of the most interesting bloggers in personal finance. 

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67 thoughts on “Million Dollar Poverty: How Much Do You Need for Retirement?”

  1. I’ve read FU money by Dan Lok and I thoroughly enjoyed it. I also learnt new tricks about making money and retiring early. I want to retire at the age of 45 and relocate to an island with my spouse. Sounds romantic right?

  2. Very informative article. I think the biggest majority of us do not have a sustainable retirement plan in place, so your post can be of great help to many people Thanks for sharing!

    1. Correct Dough, majority of us do not have the plan. I also didn’t have this plan, the only thing, I knew that I needed to be Financial Independent.

  3. It’s funny that my husband and I were just talking about retirement. lol. The standard of living in America is so expensive that it’s scary not actually having a job and just being dependent on your retirement pension.

    1. Correct. It is infact scary not having job and only dependent on retirement pension. It is very important to plan for Financial Independence.

  4. Nice. Your article is very informative. I’m very far away from retirement but ot’s an eye openner for me. Thank you so much. 🙂

  5. This post is worth reading. I am really good at financial management but this is topic where I lack information. Thank you so much for sharing and I am going to pin it so I can reference back to your post.

  6. As a long time stay at home mom, now divorced and in the work place only 17 years, I’m seriously behind in retirement planning. I will have a teacher retirement pension, but it won’t be enough to live on, and I qualify for it in December. Yikes!

    1. Excellent information Heathen Hobo! Everyone’s needs and circumstances differ and you provided all the pertinent facts and figures to help ANYONE make an educated decision on when they should retire and what sort of nest-egg they’ll need (personally) to do it! Good stuff!

  7. I want to save up for retirement but I have so many bills due to being a student in the US and now I have to pay a huge tax rate. I have to wait until my 30s.

  8. I hope to be able to semi-retire one day. I am definitely working at it. I don’t think I ever want to fully retire. I see what it does to people when they completely retire from everything and it’s not pretty.

    1. Hey Scott, semi or full retirement, its all about having freedom. Freedom to do what you would like to do not because what someone else like you to do. For me retirement is having fun in my job without thinking about my pay raise and without thinking about my paycheck at the end of the month.

  9. Really helpful info. I have a financial planner, but so many people don’t. Thanks for all of the detail. I will print this out and save it.

  10. I think it’s important to think about retirement but also from the perspective of freedom; so how can i plan for retirement without having to sell my soul in a job i hate for 40 years

    1. Hey Bianca, you don’t need to sell your soul in a job. You just have to plan and budget. Look forward to my posts on budgeting and planning.

  11. Thank you. This makes sense and is easy enough to understand. It has rem8nded me that I really need to work on seeing how much I have towards retirement and work on making that a reality.

    1. Don’t be nervous. I never thought about retirement when I was in 20s. But its great age to think and plan for it so that in future you may not be stressed like me. 🙂 Start early and retire early.

  12. I don’t even want to think about retirement. I don’t know if we will ever manage to retire, with the economy going as it is going. I don’t think that when we will grow old, the state will be able to afford to give us pensions anymore…

    1. Hi Joanna, It is not only about getting a pension after retirement but also living on the return of the investment portfolio along with a pension. One has to plan and budget in a way that one could live on 4% return.

  13. Such a useful post, thank you! I haven’t thought too much about it (bad I know!), but I can see both sides – saving money as I could go on last minute breaks, but will I have enough money to even do that in the first place…?!

  14. I don’t come from fine country and retirement sounds like hell here. The only I can ensure I will be fine is if I make investments my government can not take from me. I wish I could follow your post tips

  15. I haven’t really thought about retirement because I just graduated from college, but it is definitely something important to start thinking about. It never hurts to start planning early!

    1. Absolutely Nicole. You are at the right age to start saving for Early Retirement. You would be proud of yourself if you did.

  16. Ooh I have been wondering about this lately (not that I’m retiring any time soon). This post was really interesting, I’ll definitely come back to this post and look at my pension.

  17. It can be so daunting to see the numbers needed for a comfortable retirement. I just have to keep contributing to my retirement and trust in the fact that the money will be there when I need it.

  18. We’ve been putting away as much as we can every month to maximize matching contributions. It’s so important to save for retirement!

  19. For now, I really can’t imagine my retirement but thanks for sharing this at least you give me an idea of how my retirement looks like.

  20. This is such a great post and this is also serves as a guidance to those who are going to plan to retire and want to save their retirement fee.

  21. A very helpful guidelines for retirement plan. Will take this guideline when I retire someday. Thank you for sharing this information.

  22. This is such a great post and really help you a lot to understand everything about your retirement and your savings, will also share this with my Aunt. Thanks for sharing!

  23. Great explanation of how to plan for retirement. I wish more people were mindful of this. I think we will face an epidemic of our generations retiring without anything to retire on! I also think a lot of individuals probably want to save when younger, but life is difficult and jobs maybe hard to come by that they can’t start saving as early as they want.

    1. Exactly Frank. It is all about priorities. I never thought of saving when I was younger because I was never brought up like that.

  24. This is such an important topic and something that I must admit that I haven’t put much thought into yet. You laid the information out so clearly and explained it so well.

  25. Retirement still seems far out there but you are right, it’s helpful to start thinking about it and formulating a plan. Contingencies and economic changes are helpful to consider too.

  26. It’s insane how much people have to save now to live a comfortable life for retirement. I think moving to a country with a lower cost of living might be the most feasible way to retire and enjoy.

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