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What is Your Retirement Number?

How much do you need to retire?  It’s probably the most often asked question in the world of financial blogging and articles.    So what really is the number?  Is it as simple as the 4% rule and based on yearly expenses or something else entirely?  Let’s dig in.

Does Financial Independence Equal Your Retirement Number

This site has a long history with posts about financial independence. I’ve made it a point of stating everyone should strive to be financially independent.  But are financial independence and having enough to be retired the same thing?

The 4% Rule and Financial Independence

I asked the question are we financially independent way back in 2017.    My conclusion of that post was a bit of a depends scenario.  You see the traditional method of determining if someone is financially independent is the 4% rule.  In general, if you can pay your annual expenses from 4% of your net worth in the year you retire, and only adjust your withdrawals for inflation, then your portfolio is pretty much guaranteed to at least last 30 years.      By that rule, we are financially independent.  Now that our house is paid off we have 25x our expenses in invested assets, meeting that definition.

But if you recall from that same post I noted that the 4% rule, otherwise known as the Trinity Study, only applies to 30 year periods.  At the end of 30 years, you could have nothing left and still be a success.  So if your time period is 60 years then the 4% rule wouldn’t cut it as your only source of income.  After all, you’d still need the same amount in 30 years for the next 30, and there are no guarantees.  

So we know that the 4% rule, at least for someone with a life expectancy beyond 30 additional years, is not sufficient.    My statistically likely life expectancy exceeds 30 years, so it would be foolish of me to retire fully at this point.

I always Plan for a 60 Year Time Horizon With My Retirement Number

In fact, if the average person now lives into their 80s, a 45-year old or younger retire needs to handle way more than 30 years.  Now you could like us target 55 as a retirement year.  Then your most likely scenario is an additional 30 years.    (Not the reason we are doing so)    But then you are still playing an odds game many would not want to play.  After all, how much would it suck to live to 90 and end up outliving your money by 5 years? No thank you.  Instead, I feel more comfortable always planning for 60 more years, which would put me at 100 if I retired tomorrow.

Safe Withdrawal Rate for 60 years

Anyway, Early Retirement Now did a great study showing that 3.25% would be a sufficient number to make it through the next 60 years.  That sounds like a great starting point for most people looking to decide if they have enough to retire.  But is it enough to truly make the decision?

Here is the point where things get deeply personal.  You see, the Trinity Study uses your expenses to determine how long your money will last.  This is vastly superior to something that, say looks at income.  That is because it looks at what you might actually need.

The Trouble with Deciding Based on Expenses: They Change Over Time

But…  There is a big problem with expenses.  That is they change over time.    Some of that change is a result of things under your own control, say lifestyle inflation.  Some are because of changes in life in general (say you now have kids, have health issues, get married, or get divorced.)  The earlier you plan to retire, the bigger the risk is that you might change some significant part of your life that would drive your expenses up.  So there is still risk even if you make the 3.25% number.

Scale and a Retirement Number

So that brings us to the one thing missing, scale.    Retiring at 3.25% expenses is all well and good.  In theory, you could allow yourself to live on poverty numbers, $17K for a couple.  If your expenses stayed at that level as adjusted for inflation the money would last in perpetuity.  But what are the odds your expenses could sit at the poverty level for a lifetime?   Would you even want to have them do so long term?

Emergency Expenses and Your Retirement Number

We live in a world where an emergency car repair is $1K, a home repair is probably $2-3K (ignoring the big ones like roof), and a medical emergency could be $3-4K.  These are normal repetitive surprises that would not be surprising to see regularly, we are not talking about go into a nursing home at 100K per year numbers here.   I would theorize that $17K/year would be way too low to retire based on these numbers.  Simply a few years of these normal life surprise would blow those savings projections apart.  One minor unplanned vacation, medical issue, or home issue and your expenses would be 20-30% over budget, an amount your portfolio would likely never recover.

Simply put, it’s easy to measure your base expenses based on recent years.  But there is no guarantee that recent expenses will be future expenses.  So in a way, there needs to be some sort of raw retirement number floor on the rule or a built-in cushion, to ensure your expenses can absorb some level of expected shock.  Basically, a margin of error would you.     The higher your number the more error you can absorb caused by those surprises.   

A Minimum Threshold For Retirement

I prefer bringing the base retirement number up to a minimum threshold rather than just planning an arbitrary margin of error. Afterall there is no easy way to guess what the true margin of error will be.  Simply put we already have discretionary funds built into our retirement plans for things like travel.  The size of that discretionary amount defines the minimum retirement number threshold for us.  We can reallocate those discretionary funds to other things if such emergencies rear their heads.  So it’s less about adding a cushion and more about giving yourself enough discretionary space (allocated or not) to move things around as needed.

Our Minimum Retirement Number Threshold

For us, as a couple, I’ve baselined our minimum tolerance at a raw number of $50K.  Note this is not our expense number now or in retirement, which I will neither tell you if it is above or below this number due to stealth wealth.  What I will tell you is that even if our expenses were below 50K, I would not retire on a number that could not support a $50K a year lifestyle.  

Expense Contingencies and Your Retirement Number

Simply put at 50K your typical emergency expenses I listed earlier are below 10% of our total expenditures (most around 6% or less).  These typical surprise expenses can still be significant, don’t get me wrong, but the more frequent ones are closer to the noise level of the stock market than a drastic dip.    Also, the discretionary portion of our income at a level above 50K would exceed the cost of these normal potential risks.  Just like an emergency fund, I view this as the contingency level built into our Financial Independence number for the purpose of retirement.

A Note About Retirement With Other Sources of Income

Now a note, your raw number is highly dependent on your tolerance of risk and any backup plans you have.    If you have side hustles, ways to exclude certain expenses entirely, or some other form of additional income your need for such a floor diminishes.  If you have guts of steal and are ok with the risk of living on rice and beans when you are 90, it also might be lower.  But honestly, I think most of us feel we need some level of protection, within reason. The key is within reason, needless to say, this activity could turn into the never-ending one more year for the worriers amongst us.    

Not the $5 Million Dollar Extreme

Now, I’m not recommending like Suze Orman that we all go out and save $5 Million to retire.  In a world where few people even make $5 Million in their lifetimes, that’s hogwash.  I am advising you that just because you can retire mathematically on say $400K, doesn’t mean you should.  I’d also like to note, this article assumes by retirement you mean fully stop working.  If you decide to go follow your passion after leaving your further career, then that number can be much less.    As always, your situation may vary. 

What is your retirement number?  Did you consider emergency surprises in your expense numbers?


  1. Xrayvsn
    Xrayvsn August 12, 2019

    Excellent discussion FTF.

    When I first found out about FIRE, etc I actually shot for a $5 million net worth. Then as I figured out what my annual burn rate is currently I realized I don’t need that amount so support a really nice life.

    I actually have been shooting for a $125k/yr spend rate (which mainly elevated because I like to travel and when I do I like to spend a lot on food and lodging). I have been using a target range of 3.25-3.5% for my retirement portfolio number (excludes house and college fund).

    If things go bad I know I could still live a decent life at half my desired SWR so there is a huge margin built in.

    I am pretty close to these numbers right now but I figure I can work a few more years (I’m 48, had planned to retire at 53 when my daughter goes to college) and really get into the morbidly obese FAT FIRE realm of things which is not too bad a thing (or at least try part time).

    • FullTimeFinance
      FullTimeFinance August 14, 2019

      Sounds like you have a well thought out plan, which is the important part.

  2. Joe
    Joe August 12, 2019

    You’re absolutely right. The expense doesn’t stay the same. That’s the problem with young people trying to FIRE. They think they can live on $30k/year forever. I seriously doubt that. It’s good to have some margin. That’s why I’m still blogging and generating some active income. It’s best to put off withdrawal as long as possible. That way, your portfolio can keep compounding. By 55, our withdrawal rate should be way lower than 4%.

    • FullTimeFinance
      FullTimeFinance August 14, 2019

      Active income is a great alternative to a higher number. Especially true if that income comes from something you enjoy doing.

  3. Joe
    Joe August 12, 2019

    Oh, my target was $1.25 million. It’s working out very well because we still have some income. But if I don’t have any income at all, I’d probably revise it to $2 million.

  4. Kellie
    Kellie September 7, 2019

    My “get out of work” number is $500K 401K (mix of pre-tax and Roth). Combined with SS, a paid off house and my low spend rate, the plan is to have the OPTION to retire at 62. I’m 50 this year. It helps that I’m single and my kids are grown. I still have a mortgage but it’s fairly low ($72K left) and I’m going to have that paid off by the time I’m 60 at the latest.

    If I choose to work longer (or do a combination of retire/paid projects), I will but I want the option to go at 62. 1) In case my body decides it’s not going to work with me and 2) so I can do the things that are important to me on my time schedule.

    • FullTimeFinance
      FullTimeFinance September 8, 2019

      It’s hard without expense information to comment on the numbers listed. Your situation on the surface does sound conducive to a lower number. There are definitely many people that retire in this age range with less.

      The one thing to watch out for if you decide to actually retire with this number at 62 is how you plan to bridge the gap between 62 and 66. Social security can be taken as early as 62, but the penalty for doing so is around a 30% reduction in benefits. 66 is when full benefits kick in. So you either need to spend more of your savings until your full benefits are available or accept a greatly reduced social security benefit for the rest of your life.

      If we take the 4% rule on 500K we can estimate that this number would support 20K a year for the next 30 years. The number drops to 15K if you use a more conservative 3% based on current forward-looking market expectations. Alone it seems small but if we assume your social security is around 25-30k a year at full retirement then the combined numbers are probably doable for most people. However, if social security was taken at a reduced rate then payout might be closer to 15-20K a year. That might be tighter depending on where you live and your spending habits.

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