When can you retire?

“Time heals all wounds”


Over the last two blogs we started to answer the central question of personal finance—when can I retire.  This complex question really breaks down to two elements: How much will you need?, and How much will you have?  This blog ties them together with the time element of WHEN.  When will what you have be enough for what you need?  This blog will tie those two pieces together and we can figure out When Skinny Fox can retire.


“X” marks the spot

You can imagine drawing a graph looking at how much you’ll need in retirement based on how many years you plan on being retired.  At the extreme, if you planned on working until the day you died, you would be in retirement for 0 years, so you would need to save $0 for your retirement.  You’ll need more for a 10-year retirement than a five-year retirement, and so on.  Hopefully that is fairly intuitive.

The assumptions we made for spending in retirement would make the following table (just to make things easy, let’s assume we’ll live to 90 years old):


Nestegg size needed—in today’s dollars


$0 (remember, we die at 90)
















That graph would look something like this:


Also, in the last post we drew a graph that showed how much we would have saved at different ages.  It looked something like this:


If you ever took an economics class you know that the answer to pretty much any question is “where the lines intersect.”  If you put those graphs together, where they crossed is where you would have saved enough money (blue line) to be able to afford your spending in retirement (red line).  In this case, the answer is $3.5 million (future dollars).


If you look at Skinny Fox’s age, she’ll have saved that much money when she’s 60.  Also, at age 60 is when she’ll need $3.5 million to see her through retirement.  X marks the spot.


It’s the process, not the answer

There you go.  Skinny Fox can retire at 60.  We should all retire at 60.  Glad we figured all that out.  Buuuuuutttttt, wait a second.  The whole point of this isn’t to figure out a number, per se.  That’s important, but what is much more important, especially as you are planning your financial future, is figuring out how your decisions impact that number.

This process we went through is enormously complex with a ton of variables and calculations on a fairly involved spreadsheet   .  If you’re good with spreadsheets and compound interest, you can figure all this stuff out and understand the impact of your choices.  If not, maybe your friendly neighborhood Stocky Fox can help.

To keep things simple let’s look at the two major variables that got us here:

  1. Spending in retirement: Skinny would spend about $6,500 per month in retirement, and that would naturally go down as she ages.
  2. Savings while working: Skinny would save 6% of her salary in her 401k, save $5,000 in her IRA, and of course get Social Security.

As is, those two ingredients spit out age 63.  It becomes really interesting when you start to change those inputs.


Enjoy life in the now

Maybe Skinny Fox looks at life and thinks that you only live once, so you have to enjoy life in the “now.”  You never know what the future holds.

She wants to use her handy dandy spreadsheet to figure out what would happen if she saved less today.  The intuitive answer is obviously that saving less today means she’ll need to retire later or she’ll be able to spend less in retirement.

Instead of saving $5,000 in her IRA each year, let’s say she cut that in half and only saved $2,500.  She could still retire at 60 but that would mean she could only spend about $5,700 per month in retirement, a decrease of about $800 or 15%.  Conversely, she could still spend $6,500 monthly in retirement, but then she would have to push her retirement back to age 62.

We could run a few scenarios and get the following table:

IRA/extra savings Retirement spending Age of retirement
$5,000 (base case)




$5,700 (spend less)




62 (work longer)






64 (work longer)


Retire in style

Maybe Skinny takes the opposite approach and wants to work hard now to ensure she can spend to her heart’s desire once she’s retired.  We can use a similar approach.

Instead of spending $6,500 per month, she could spend $7,500.  That would require her to save an additional $x,xxx per month while she’s working, or it would require her to push her retirement from 63 to xx.

Again, we could run a few scenarios:

IRA/extra savings

Retirement spending

Age of retirement

$5,000 (base case)








62 (work longer)






67 (work longer)


Time is the most valuable thing we have

You’re probably starting to get the point.  There are two variables, how much you save and how much you spend.  You can move those around however you want.  The third variable of age balances everything out.

Interestingly, the age variable seems to be the most powerful.  If Skinny wanted to retire five years earlier, at age 55, she would either have to save an extra $4,800 each month or she would need to reduce her spending in retirement by $1,100 each month (that’s about 20% which seems like a big reduction).

Conversely, if Skinny was willing to work an extra five years, retiring at age 65, she could spend $3,300 more each month in retirement or completely skip her IRA.

That seems a bit surprising that over a 40+ year career that just a five year swing (a little over 10% of a working career), one way or the other, has such a big impact.  The reason is working an extra year has a triple-effect.  It gives your investments an extra year to grow, it gives you an extra year to build your nestegg, and it reduces the time you’ll be retired.  Obviously, the opposite is true too if you want to retire at a younger age.

Clearly you can see the tradeoffs Skinny needs to make.  Is it work spending more now if that means having to work longer?  Or having less to spend in her golden years?

There’s no right or wrong answer, and it’s a deeply personal decision.  For the Fox family we made the decision to retire early.  This meant spending less in retirement, but when we did our math we found that we could stop working and still maintain a reasonable lifestyle.  Sure there are times now when we wish we could spend more, but given the time/spending tradeoff, I think we’re pretty happy with our decision.

How do you feel about the time/spending now/spending later tradeoff?



We’ve covered a lot of ground here.  I hope this gives you a sense of “what is reasonable,” both in terms of how much you’ll likely spend in retirement and how much you’ll save.  Also, it let’s you get a sense for the tradeoffs you make by spending today and how that impacts tomorrow, and vice versa.

However, I think the biggest epiphany for me at least was how important timing is.  Everyone will be able to retire.  It’s just a matter of when.


How much should I save during my working years?

Monday we started tacking the enormous question of “How much do I need to retire?”  We dove into the first sub-question:  How much will I spend in retirement?  Now we’re going to take on the next question: How much should I save during my working years?  Then tomorrow we’ll bring it all together by answering the third question: When can I retire?


Let’s start talking about savings.  We know that savings is the fundamental ingredient in investing and we know that starting early provides a great advantage.  We’re going to use the example of my cousin, Skinny Fox.  Skinny is 22 years old, just starting out with a $50,000 per year job.  She expects salary increases of 5% (a little more than inflation) and she’ll eventually top out at a salary of $150,000 per year (in future dollars).


Social Security

The first place to start when thinking about your nestegg is Social Security.  That’s the “forced” savings plan the US government makes you do.  It’s complex and there is a lot of nuance, but basically they’ll take 6.2% of Skinny’s income (plus another 6.2% from Skinny’s employer) over her working career.  When it’s time to hang up the spurs, she’ll get a monthly pension.  So in a very real way, Social Security is your first “savings” method.

Unfortunately, the rules for Social Security aren’t very straight-forward when it comes to figuring out how much you’ll get based on how much you put in.  However, it seems reasonable that a middle-class fox like Skinny will get a middle-class payout from Social Security like $2,000 (in today’s dollars) per month starting when she turns 67.

For Social Security, when Skinny “saves” her 6.2% of income ($3,100 in her first year of work), that gives her a pension that will be worth about $450,000 in today’s dollars; that’s about $1.6 million when Skinny turns 67.



When Skinny Fox was looking for her job she knew how important it was to consider the company’s benefits beyond just the salary.  Her company offers a 401k and matches $0.50 for every dollar up to 6% of her salary.  Skinny knows she should max out her 401k because of tax reasons, but that’s just not realistic for her, so she just contributes the 6% to get her company match.

Her first year she contributes $3,000 to her 401k and her company kicks in a $1,500 match.  Over her entire career her 401k will steadily build until she turns 67 and it’s worth about $1.9 million (in future dollars)!!!


IRA and other savings

Skinny is a nervous soul whose father fox always taught her to save, save, save.  She knows that she can contribute to an IRA, after reading this blog she knows it should be a traditional IRA and not a Roth, with $5,000 per year.

When Skinny turns 65, that IRA is worth about $1.2 million.

If she’s still nervous, she can save in a regular brokerage account that doesn’t have the tax advantages of a 401k or IRA.  Each $1,000 per year she saves equates to about $200,000 when she turns 65.


This really illustrates the power of compounding.  I’m not saying that $3,000 per year for her 401k or $5,000 annually for her IRA isn’t a lot of money.  Especially when she’s first starting out—it’s definitely a lot.  But $8,000 doesn’t seem insurmountably unrealistic for Skinny.  Each year after that it gets a little easier.

However, the payoff seems huge.  Slowly and steadily, over her 43-year working career, her 401k will have steadily grown to $1.9 million and her IRA to $1.2 million.  She’ll also have a backstop of Social Security which would have a lump-sum value of about $1.6 million.  Combine all those, and she’s got a nest egg of about $4.7 million in future dollars (about $1.3 million in today’s dollars).

That certainly seems like a lot, but is it enough?  We know from yesterday’s post that $1.1-1.6 million is right in the range of a pretty decent retirement.  So Skinny’s there just based on her 401k, IRA, and Social Security.  The good news is that doesn’t include any home equity she builds over her adult life, extra savings just from making more than she spends, or any inheritances or other unexpected windfalls.  So maybe there’s some cushion there.

On the other hand, she maybe she shouldn’t feel especially comfortable.  She has a clear path to $1.3 million and she’ll need $1.1-1.6 million.  That’s definitely within the margin of error.  What is a vixen to do?

Come back next Monday for our final installment of this blog mini-series where we bring together what you’re going to spend in retirement with how much you have saved for retirement, and we’ll see if it all works.