How Much Is Enough For Retirement?

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"Dear Ami" is Steward’s money advice column. Submit questions here.

Dear Ami,

I don’t know if this is a good question or not, but how do I know if I have enough to retire?

Stressed Out Saver


Today, Steward’s CEO and Certified Financial Planner® Ami Shah breaks down the calculation for determining how much is “enough” for retirement. Using the 3% rule, you can easily ballpark the magic number at which you won’t have to work another day in your life. Let’s dive in!

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Table of contents

Dear Stressed Out Saver,

First of all, that is an amazing question, and it’s one that is on most of our clients’ minds. You’ve done the saving, the investing, the budgeting—but are you doing enough? How much money will you actually need to live comfortably in retirement? What’s the magic number that will give you the option to no longer work?

Here at Steward, we find that number using the 3% rule—a common tool amongst financial planners, but one that’s rarely understood by their clients. Today, we’re here to explain the rule as simply as possible. After all, our clients at Steward deserve to understand the magic behind the curtain when it comes to their retirement & future.

What is the 3% rule?

Step 1: Add up all of your expenses for the year.

Step 2: Take your total annual expenses, and divide that number by 3%.

And there ya go. That’s the magic number for financial freedom. That is how much money you’ll need to have to have the option not to work. Once you have that number in wealth, you can live off of it for the rest of your life—with the implication that your annual expenses stay the same as the amount you input in the formula.

 For example, let’s say your annual expenses (mortgage/rent, utilities, credit card bills, student loan payment, etc.) add up to $75,000. To find your magic number, divide $75,00 by 3%, and you get $2,500,000. That means you’ll need $2,500,000 in your income/investment account to have the option not to work, but still sustain the life you’re currently living—which is drawing out and spending 3% of your income each year. 

Put even simpler: the 3% rule means achieving an accumulation of wealth where you can take out 3% of that wealth every year and still be on track towards financial freedom & your dream retirement.


Does the rule actually work?

Yes! There has been extensive research done on retirement portfolio success rates based on withdrawal rate. This study by the financial planning association shows that when using an annualized withdrawal rate of 3%, there is essentially an 100% portfolio success rate when adjusted for inflation—across all types of stock/bond allocations. 

As you increase the withdrawal rate, the success rates vary a little more. But at 4%, success rates are still mostly 100%, and even up to 5%, success rates are mostly above 80%. See the full table below:

So the past track record definitely shows that the 3% rule is successful! Of course, financial markets vary, so we always have to be flexible and willing to adapt. But setting your withdrawal rate to 3% a year almost guarantees that you’ll have enough to live out your dream retirement!

Why 3%? Is there wiggle room?

Multiple studies (Trinity, Vanguard, Bob Bengen) have tested this out against historical market ups and downs to test what’s the maximum # you could withdraw without running out, and found that 3-4% is the sweet spot.

Using a 3% withdrawal rate essentially guarantees that you’ll have enough money and then some when it comes to retirement. Your best bet is using 3%. Are you still not sure why 3% makes sense? Well, let’s look at another chart by the financial planning association:

This table showcases, on average, how much money is in your portfolio at the end of the period given an annualized withdrawal rate and adjusting for inflation. They assume that you put $1,000 initially into the portfolio. 

You’ll see that if we use a 3% withdrawal rate—meaning you take out 3% of your portfolio every year—on average you’ll end up with $8,707 at the end of 25 years and $12,929 at the end of 30 years (given an 100% stock allocation). You were able to take out 3% of your portfolio annually and you STILL end up with ~13x your initial investment after 30 years!

Expand this thinking out to your retirement portfolio which will have much more than $1K in it. If you can achieve a level of wealth where your annual expenses are only 3% of your wealth, then you’re set for life! The money will continue to grow and replenish itself each year. That’s why 3% works.

In terms of wiggle room—the short answer is yes, there is some flexibility on the 3% figure. As seen in the first table, 4% and 5% withdrawal rates also have great success rates—just not as successful as 3%. We recommend 3% to be conservative, but you can adjust to 4% or put it to 5% if you have less time to be conservative and retirement is speeding towards you.

Who can help me figure this out?

Many financial advisors & planners might recommend using the 3% rule to you, but not many will actually explain it to you. Here at Steward, we are committed to opening up the 1%’s wealth strategies to America’s up-and-coming families with a combination of 21st century tech and trusted advisors. We help families determine how, where, and when to invest and save for retirement in plain-English, with minimal time and effort.

Steward can help you determine how much is “enough” for you, at what age you can have the option not to work, and how to invest and save in the most efficient way for financial freedom. Give it a try here!

Written by

Written by Ami Shah and Ilija Wan-Simm

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