Putting Retirement Int Perspective

We all have the dream to one day be doing something like this right? Wake up whenever you want in the morning, walk outside to your beach front villa on your private island, and watch the sun rise. What does it take to achieve retirement? What does the process look like? How realistic is it to retire before you are 65? In this article, I want to give you a realistic look at what it takes to retire. What does the process look like? How do you calculate how much you need for retirement?


Ok, so you want to retire but you are not sure where to begin. The first step is to figure out how much you need to save to retire. How do we do that?

First, Calculate your current income after taxes.

Second, calculate your annual spending.

Third, divide your annual spending by .04

Next, divide this # by the amount you save annually (annual income – annual spend) to get how many years it will take you to retire.

This will give you the # you need to save to retire. We use the .04 or 4% because that is a safe amount to assume you will make off of your interest/dividends in a worst-case scenario year. The goal Is to have enough principle to generate the interest you need to live year after year.



 Income = $48,750 annually after taxes. ($65,000 before taxes in 25% tax bracket)

Expenses = $38,000 annually.

$38,000/.04 = $950,000 needed to retire. ($950,000 will earn you 4% or $38,000 a year in interest to live off)

 $48,750 - $38,000 = $10,750 savings annually.

$950,000/$10,750 = 88.37 years to retire.


WOW! No wonder people call this the rat race! Given I usually start work in my early 20’s, it appears the only retiring I will be doing is when I am dead!

Let’s look at a case with someone in the upper class.

Income: $125,000 annually after taxes ($173,612 before taxes in 28% tax bracket)

Expenses: $75,000 annually

$75,000/.04 =  $1,875,000 needed to retire.

$125,000 - $75,000 = $50,000

$1,875,000/$50,000 = 37.5 years to retire.

WTF!? Your telling me it is going to take me 37.5 years to retire if I make that kind of money!? What if I made that kind of money but only spent $38,000 annually like in the first example.

$125,000 - $38,000 = $87,000 savings annually.

$1,875,000/$87,000 = 21.55 years to retire.

Ok 21.55 years is possible, but what about inflation? The average rate of inflation over the past 100 years is about 2%. There have been times where it was much higher and much lower but the average is 2%. At an average rate of 2.0% per year you can expect your money to lose half its value over the course of about 28 years.

This website can help you calculate the buying power of your $ over the years due to inflation:


In other words, if over the course of 28 years, assuming 2% inflation, you saved $1,000,000 then your $ would only have the buying power of $500,000. Inflation has eroded half of your savings!

Here is a video to put this into perspective:



Brandon, your telling me that not only is it going to take me 20 – 40 years to save up enough money to retire but that every 28 years my money will lose half its value? Yes, that is exactly what I am saying. No wonder you feel like you are on a hamster wheel! Is it even possible to retire at all!?

Fortunately, the answer is yes, there is!




The answer is compound interest. What is it? It’s when the earnings of your investments are reinvested back into the investment over and over again. This is what it looks like:


Let’s say you put your money into a stock market index fund. We will use 9.8% annual growth since that is the average annual return the stock market has produced over the past 100 years. Keep in mind though, past performance is no indication of future performance.

$10,000 with a 9.8% return will give you $10,980 after year 1.

$10,980 with a 9.8 return will give you $12,056 after year 2.

You are now 2 years into your investment and have made $2,056 off interest. The first year you made $980 and the second year you made $1076. The more money you have as your principle the more interest you earn. Let’s look at how this plays out over the course of 28 years.

$10,000 compounded at 9.8% per year for 28 years = $137,046! Not bad! Let us then refer back to the first example where it would have taken us 88.37 years to retire.

We were saving $10,750 annually and needed to get to $950,000 to retire. How long would this have taken if we invested our money in stock market index funds.

After the first year we decide to put our $10,750 of savings into the index fund and every month we add our savings to the fund. This would give us a monthly addition of $10,750/12 months = $895 per month. So we will be adding $895 per month to our index fund.

$10,750 compounded at 9.8% annually adding $895 per month for 22.25 years = $953,887! You did it in ¼ of the time with compound interest!

To prove all of this here is a calculator you can play with:



As you can see there are 3 important variables that affect the # of years it takes to retire.

  1. Your annual expenses.
  • The lower your expenses, the lower the principle needed to retire, which means less working years to retire.
  1. Your Savings.
  • The greater your savings, the less years you work until retirement.
  1. Your income.
  • The greater your income, the more you can save, which means less working years until retirement

Your ability to lower your expenses, save more, and earn more income will directly affect the # of years it takes you to retire. So how do we do that?


Lowering your annual Expenses and saving more:

If you do not have a budget or track your spending its time you do it right now and here is your magic tool to do so. It’s called Personal Capital. Creating an online account is safe and free. Here is a link to check it out below:



If you follow the instructions you can get a perfect snapshot of all your spending and income. This is going to give you your savings (cash flow) or the difference between your income and expenses. Now, it is time to look at your expenses and analyze the areas where you need to reduce spending. For me, I nearly fell out of my chair when I realized how much I was spending on restaurants and going out.



$658 per month x 12 months = $7,896 a year! Imagine if I cut that # in half and put the rest in savings? Let’s plug that # into our previous equation and see how it affects the # of years until retirement.

Previous Example:

$10,750 compounded at 9.8% annually adding $895 per month for 22.25 years = $953,887

Now, let’s add in $3,948 on top of that. $3,948/12 = $329 additional savings per month.

$329 + $895 = $1224 per month in savings.

Ok, here we go –

Your 30 years old and saved $10,750 last year but after adjusting your restaurant spending you save an additional $329 per month. How long will it take you to retire?

$10,750 compounded at 9.8% annually adding $1224 per month for 19.65 years = $950,542.39

22.25 – 19.65 = 2.6 years

We cut 2.6 years off our working life by only adjusting our restaurant spending! Not bad, but let’s see if we can do better. Say we created an additional $10,000 in annual income for ourselves.

$1224 + $1,000 = $2224 per month in savings

$10,750 compounded at 9.8% annually adding $2224 per month for 15 years = $958,902.80

22.25 – 15 = 7.25 years less to retire! Hopefully now you can see how small changes to your spending and income can cut a huge number of years off the time it takes to retire! Let’s frame it like this. The average Americans live to about 79 years old. 7.25/79 = .091 or 9.1% of your life! By cutting my restaurant bills in half and creating an additional $10,000 in income I can spend an extra 9.1% of my life in retirement! That’s 1/10th of my life to do whatever I want!

Now, based on the 2% inflation principle your savings are will have eroded about ¼. In other words, your $958,902 principle will be worth about $719,176 in today’s dollars due to inflation so it will take you a few more years to catch up to your magic #.

Hopefully now you can see how powerful compound interest can be. By increasing your income, reducing spending, and saving more it is possible for the average income American to retire.


Additional resources:


How to reduce your spending and save more






Increase your income


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Find any of this helpful? Think I am crazy? I would love to hear from you, leave a comment below!