How much should you save?

If you don’t want to be solely dependent on (underfunded) Social Security checks when retired, then you better be putting some money aside.

Many guides shoot for a financial independence, saving at least 25x of your annual expenses based on 4% rule, but for many households, these numbers are unreachable or unsustainable. I put together a simplified guide with a bare minimum you should be saving and a goal of having 10x of your annual expenses saved when hitting theĀ age of 65. Optimal savings to expense ratio should be double or more of what is in the infographic below.

4% rule (4.5% rule)
You might have read about the 4% rule originally published in 1994 (in later stage updated by its author to 4.5%). The 4% rule says that you could withdraw 4% of your savings every year and live on them indefinitely. Basically taking out only the interest without touching the principle. To become financially independent you need at least 25x of your annual expenses.

Annual expenses = $60,000
25 x $60,000 = $1,500,000
4% from $1,500,000 = $60,000

Which means to achieve “financialĀ freedom” you need to set the goal at least 2x more than the minimum savings in the infographic and always be on the lookout for the creeping inflation.

Example (inflation rate = 2.5%)
Annual expenses in 2018 $60,000
Annual expenses in 2028 $76,805
Annual expenses in 2038 $98,317
Annual expenses in 2048 $125,854
Inflation calculator


  1. U.S. Bureau of Economic Analysis, Personal Saving Rate, FRED
  2. Bloomberg
  4. The New York Times

Leave a Reply

Your email address will not be published. Required fields are marked *