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How Much Do You Need To Retire?

Here’s How to Figure It Out

In 1998, three finance professors at Trinity University conducted a study to determine the best “safe withdrawal rate” from stock market portfolios after retirement. The study simulated how investment portfolios performed against market performance between 1925 and 1995.

The study said: “If history is any guide for the future, then withdrawal rates of 3% and 4% are extremely unlikely to exhaust any portfolio of stocks and bonds during any of the payout periods.”

How can soon-to-be retirees use the Trinity study to estimate how much they need to retire? The math is pretty simple.

Let’s begin with an example using the 4% guideline. If you have $1 million invested in the stock market, you can withdraw $40,000 every year for the rest of your life and stand a good chance of never running out of money.

The math looks like this: 1,000,000 x .04 = 40,000.

What does this mean? Retirees anticipating spending $40,000 yearly should accumulate around $1 million in investments before calling it quits.

But, that’s not the only way to calculate how much money you need for retirement. We can also flip this equation around. What if you need to spend $90,000 a year in retirement? How much money should you have invested in the stock market to retire safely?

I call this the “Yearly Spend” method of working out the math. If you don’t know your net worth or prefer to start with your annual spending, this will be a better approach to using the Trinity study.

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