Save. Spend. Splurge.

How much do you need to have saved for retirement? By salary per year and investments.

This is a chart for retirement, made up with the 25X rule and the 4% withdrawal rules.

What’s the 25X rule?

Simple. What do you want to spend in retirement? $50K?

Take $50K x 25 and that’s how much you need saved = $1.25M.

You are financially independent if you have 25X your expenses invested.

Note that I said INVESTED, not saved, because it assumes you have it marinating in the stock market, earning an average 7% return in the long-run.

Linked to this, is your personal finance score… which is your net worth divided by your expenses, if your PF score is 25, you are financially independent.

If you want to be super conservative, you can make this 25X rule become a 30X rule, just to be DANG SURE you have enough saved.

This is what 30X savings would look like:

Is this pre-tax or post-tax?

Pre-Tax. For all intents and purposes, this is PRE-TAX as if you are getting a salary or gross income.

You will have to pay taxes on it, UNLESS you have it invested in certain areas and can mellow out the tax hit.

For instance, if your investments are in your TFSA or Roth IRA, those are tax-SHELTERED investments, and you will not pay taxes when you withdraw the money.

But if your money is in an RRSP or 401K, these are tax-DEFERRED investments, so you will pay taxes when you withdraw the money.

In Canada, we also have a thing with dividends – we can take roughly up to $50K in dividends and only pay about $200 in taxes.

Dividend income is one of my investing goals / strategies – Mini Project: Dividends and this is my list of dividend stocks I look at for Canada and the U.S.

Is this present or future value?

Present. Today if you had those amounts saved, you can just retire.

It works even for early retirees because they just have to manage their income / cash flow a little, but generally are fine with this valuation at 25X your income.

It already takes into account FUTURE value because of the 4% withdrawal rule, which already has 3% of inflation baked into it. Read below.

What’s the 4% withdrawal rule?

It assumes people can safely withdraw 4% of their investments when in retirement, and not affect or ruin their capital to the point where they could *GASP* run out of money.

How did we get 4%?

We are assuming a 7% long-term return, and with inflation also assumed at an average of 3%, 7 – 3 = 4%.

Therefore, you leave enough money in your investments to cover inflation (3%), and you can safely withdraw 4%.

Remember, these are all AVERAGES.

Some years you’ll tank (2008/2009 anyone?)… and some years you’ll be fine (2019!).

The key is just to keep the money invested, and go easy.

Maybe here and there you might need to pick up a job in the interim to help smooth things over if need be, but honestly, it is not an issue.

What does living off of your investments/ having income producing investments mean?

It means that every year, you sell 4% of your investments.

If you do not have enough in dividends coming in to cover your living expenses (THIS IS IDEAL!), then you need to divest your investments each year.

My partner is already retired, and starting a new career path as a professor (or so he says, who knows), and each time he needs to pay the bills, he picks a stock or two, and sells some of it, and uses that money.

If he had dividends coming in, he could literally just take the dividends instead of reinvesting them, and live of that money – which is my plan actually.

Invested, right? Not just saved?

So the PF score calculation I mentioned above by taking your net worth divided by your expenses, is just a way to see if you are on track in terms of savings.

But for ACTUAL retirement savings, you need to take what you have INVESTED (not your car, your house, your anything, but actual money in the market), and use that in this calculation.

Why not your house in this calculation?

Well because you gotta live somewhere, and you can’t eat your house.

Unless you plan on selling your home to release the capital so you can use that money to live (e.g. $600K house, sell it for $800K and rent), I would personally take your house, car and any assets you are NOT LIKELY TO SELL or liquidate out of this calculation.

To take me as an example.

My net worth is $900K right now. Only about $382K is actually invested in the market, getting that 7% long-term interest growth.

The rest of my net worth is made up of:

  • Cash – earning only 3.3% not 7%
  • My home – earning whatever it earns in capital gains each year but it is all on paper as I don’t plan on selling
  • My car – depreciating asset but still able to be sold if need be

This means, if my goal is $50K a year in income, I have about $868K of investments / savings to go. O_o

Or, I could just spend less money (yeah, WTF Sherry), and need to save LESS in investments.


Because my house and car are paid, it means I have lower monthly expenses, and can just plow whatever I make into investing, which means I can throw about 85% of my net income each month into investing, and not worry about a damn thing.

Now, if you are OKAY with selling your home as part of your financial retirement plan, you can add it in your calculation.

(Don’t forget realtor fees, having to spruce up your home and stage it for selling, etc.)

Does this work for people who want to retire at 30? or 40? or 50?


“BUT HOW CAN THIS BE? Only 25X saved = 25 years right?”

Technically yes, but a few other factors have to be considered:

  • Retirees generally spend less than they think – they aren’t really going around the world buying Herm├Ęs Birkins or fine art; they’re just living a simple, work-free life. They aren’t living it up, they are living simply, spending less on gas to get to work, less on work-related expenses like daycare, or what have you.
  • Many retirees tend to pick up side jobs or hobbiesLook at Tim Stobbs, he started working part-time at the library for fun, and he loves it. No pressure of being an engineer, he just goes to the library, works a few hours a week, and relaxes the rest of the time with his other hobbies. If push comes to shove, you can ALWAYS pick up a part-time job on the side to help defray expenses if things are a little rough this year on 4%. The point is you do NOT have to do your crappy 9-5 job that you hated (if you hated it, I love my job), and you can do something simple and brainless, which relaxes you.
  • Many retirees have spouses who keep working – I am in this boat. My partner retired, and went back to school to study to become a professor of physics, his lifelong dream/ambition. I am still working. Of course, he still brings his half of all the expenses, etc but still! I am still there in case anything happens.
  • Some years will be better than others – Not always, so you can pick up a side job if need be, but some retired years will see phenom gains on the stock market that far outstrip the 7% average. Keep saving and re-plowing this money back in!

If you really want to be ultra conservative, make it 30 years of savings.

Any questions?


  • liteadventurer

    It’s always interesting to read people’s takes on safe withdrawal rates. The one I use is 3.5% (around 28x expenses) because I plan on retiring earlier than most people, but historically 4% has worked for almost every period in history. Then there are people who are constant worriers who only feel comfortable with a 2% withdrawal rate and wasting a lot of their good life years working too hard.

    Owning your own place is definitely a plus, as housing tends to be most people’s biggest recurring expense.

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