How Much Money Do We Need to Retire?

What we need to retire is not money but rather assets. When we spend all the money, we are broke, but when we have  assets that generate monmey, we will never be broke.

One of best assets for regular inestors to accumulate and reach our retirement goal is index funds. But, how much asset do we need to retire?

Assume we nend $1,000 a month to cover all our living expenses, we will need 12 times $1,000 which is $12,000 per year. And with a portfolio of SPY ETF that we can safely withdeaw 4% annually from, we need $12,000/0.04 = $300,000 worth of SPY ETF. 

Why 4%? I have reached this conclusion and even if we retire right at he stock market top of the 2000 or 2008 financial crises, we will still have not use up our retirement, or even, our asset value may be actually higher than before we retire. Detail calculation is in this article.

I also made a simulator to test if we would spend all our retirement selling 4% of our pure SPY portfolio. 

How much money do we spend per month? Here is chart of average spending in some major cities. 

Or we cen refer to an example in this book, the simple path to wealth, which is about if we want to be able to spend a lot of money we can never retire, or if we can retire early with fewer asset value otherwise. 

Here is tthe able of how much money we need to retire by how much we want to spend per month and expected annual reutrn rates from our portfolio.

Choose Annual Return Rate:

1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Monthly Expense	Annually Expense	Portfolio Value Needed

Chart of Portfolio Value Needed with Different Withdrawal Rate

This is a calculator we can use to get how much we need to retire.

Monthly Expense:
Portfolio Annunal Return Rate: %

You need $12000 per year, and $300000 to retire.

Conclusion

We don't want to expect our portfolio annual return rate to be too high. 4% is resonable. The lower our expectation to our portfolio return, the more we need to save up to meet our retirement needs. Now the 30 year treasury yield is at 2%, so if you are rich enough you can return with $600,000 if your living expenses are below $1,050 per month.

The average annual return rate of SP500 index is between 9 to 10%, so if you don't worry about getting broke at all, you can also retire with $120,000 if your living expenses are below $1,000.