How much should you be saving? It’s a question that we ask a lot, and there are a number of rules of thumb. One answer is based on the 50/20/30 budgeting system. Popularized by Senator Elizabeth Warren, this rule of thumb suggests we should be saving 20% of our income.

Any general guideline, however, has shortcomings. For starters, how much we should save will vary based on our age, years to retirement, and overall goals. A 20 year old may not need to save the same amount as somebody in their 50’s who’s just starting to save for retirement. Yet if a general rule of thumb only gets us so far, how do we decide just how much to sock away each month?

## Financial Freedom Calculator

To answer this question, I’ve created what I call the Financial Freedom Calculator. This simple spreadsheet can quickly estimate how long it will take you to achieve financial freedom based on the percentage of your income that you save. Below is a quick view of the calculator. We’ll walk through the underlying assumptions, and you can use this link to access the calculator (you’ll be prompted to make a copy of the spreadsheet so that you can edit it).

We achieve financial freedom when our investments can generate sufficient income to meet our living expenses. For most people, this occurs at a traditional retirement age, if at all. Others, like Mr. Money Mustache, achieve financial freedom at a very young age. The idea behind the Financial Freedom spreadsheet is to estimate how many years it will take you to achieve financial freedom. The spreadsheet uses the following assumptions and inputs:

**The Number**: The spreadsheet assumes that financial freedom occurs when we’ve saved 25 times our annual spending. For example, for a family spending $75,000 a year, they would need to save 25 times this amount, or $1,875,000 to achieve financial freedom. This is based on the well known 4% withdrawal rate in retirement. You can change this assumption in the spreadsheet. Raising the withdrawal rate reduces the number you’ll need to save while lowering the withdrawal rate raises it.**Rate of Return**: The spreadsheet provides results based on annual returns ranging from 5% to 9% in 1% increments. As you’ll see, the rate of return significantly affects the time it will take to achieve financial freedom. In the section of the spreadsheet labeled “Have Fun With Your Own Numbers,” you can enter any rate of return you’d like.**Inflation**: The calculator does not adjust for inflation. However, you can factor in inflation based on the rate of return you choose.**Income**: The assumed annual income is $100,000. It was chosen as a nice round number. You can of course change this input once you create and save a copy of the spreadsheet. Note, however, that changing the annual income does not change the time it takes to achieve financial freedom. This may seem counter-intuitive at first, but remember that saving and spending are based on a percentage of income. Saving 10% of your income, regardless of whether you make $50,000 a year or $5,000,000, means that you are spending 90% of your income. Given an assumed annual return on investments, the time to save 25 times 90% of your income is the same.**Saving/Spending**: The spreadsheet assumes that your saving and spending added together equal 100% of your income. In retirement, however, you may spend significantly less than you spend during your working years. This could be the case for several reasons, including having a paid off mortgage, moving to a less expensive area of the country or providing for fewer family members (at least one hopes the children eventually move out!). For this reason, the “Have Fun With Your Own Numbers” section enables you to set specific dollar amounts for your savings and income, which together may not equal your current income. For example, a family making $100,000 and saving 20% today is spending 80% or $80,000. But in retirement they may plan to spend only $50,000.**Current Savings**: You can enter your current savings. Of course, the more you already have saved, the closer you are to financial freedom.

I hope you find the calculator useful. And if you have suggestions for ways to improve it, please leave a comment below.

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**Topics:**Personal Finance

Is the income field pre- or post-tax? And the spending/savings rate, is that pre- or post-tax?

You can use it either way.

I don’t understand…why would reducing the rate at which I am withdrawing money from the fund increase the amount I have to save to reach my goal?

George, great question. If you need $50,000 a year to retire and can take out 10% a year (way too much, but stick with me), you would only need $500,000. Why? $500,000 multiplied by 10% gets you to your $50,000 goal. If we cut the withdraw rate in half to 5%, you now need twice as much. $1,000,000 multiplied by 5% gets you to $50,000.

Rob,

No matter how many times you explain the percent of expenses, the logic doesn’t work out here. It seems you have based your FF calculator on the concept surrounding the 4% rule, but allow the withdrawal rate to be a variable. If this number gets too high, you will run out of money. Calculating years to FF only really works when looking at annual expenses and a withdrawal rate somewhere around the 4%. I see you are looking at expenses in the table, but allowing the withdrawal rate to vary is misleading. For example, if I’m making $100,000 and saving 50% and put in a 50% withdrawal rate, I reach FF in less than 2 years, but will run out of money within 27 months of retirement. The 4% rule estimates your money will last around 30 years. Changing the withdrawal rate greatly changes the length of time your investments will last, which it seems the table overlooks.

Thanks

Have tried both links it doesn’t seen editable. Any suggestions?

Ed, you have to have a Google account and be logged in. If you are it should work.

Rob. Thanks for the reply. I think I see where you are coming from. The withdrawal %/amount reduces expenditures (when the % is increased) which in turn reduces the amount needed to be saved for the remaining, lower expenses. This is turn reduces the size of the portfolio needed to cover the lowered expenses and shortens the time frame needed to save.

I have another idea on a different structure that I will try to flush out in Excel as soon as tax season is over. Thanks again for the reply. Jim

Bob. Sorry, I can’t get my mind around how this is working with the lower % withdrawal creating a longer time frame to get to financial freedom. I saw your response to Winston above who raised the same question but still can’t wrap my head around how this is working. Relative to your response of needing $50,000 to spend each year (5% of $1M) and only being able to afford to withdraw 4% safely, I see how the need for a bigger nest egg is called for. I don’t see where these parameters are defined or considered in the spread sheet. Probably has something to do with my lack of understanding the NPER formula and its intent and therefore your intent.

My mindset, and I dare say most people, think of a lower % withdrawal as less money spent and therefore less time and money needed vs. what your spreadsheet shows. Can you orient your sheet or explain its terms so that it can be more easily understood and useful? Thanks for the work you are doing.

Jim, it does take some time to wrap your mind around it. Keep in mind that the amount of money you need is not determined by the withdrawal %. You need whatever you need, based on your budget and spending habits. Once you know that number, figuring out how much you need to save to generate that annual income will depend on the withdrawal rate. The higher percentage you can withdrawal each year, the less you’ll need to generate your annual spending need. Of course, take out too much and you may run out of money. Hope that helps.

Is there a way to access the spreadsheet without having to create a google account?

Janis, I’m afraid not. On the plus side, a Google account is free.

You say that: “Inflation: The calculator does not adjust for inflation. However, you can factor in inflation based on the rate of return you choose.”

Would this be simply taking the estimated rate of return (say 8%) and deducting the rate of inflation (say 3%) which would give you a 5% rate of return to base your estimated “Years to Financial Freedom”?

You also say that: “Note, however, that changing the annual income does not change the time it takes to achieve financial freedom.”

This is kind of misleading… if you already have savings then changing the annual income will affect the number of years to financial freedom. You are already XXX number of dollars ahead of the game. For me personally, it’s great to see that the amount I’ve already saved has eliminated 7-9 years off my “Years to Financial Freedom”. Great little spreadsheet to know that I’m headed in the right direction financially. Thanks!

Jeff, yes on inflation. Using a 5% or 6% return assumption gets us close to a projected real rate of return (i.e., after inflation). And the comment about income was simply that this is based on percentages. As a result, making more doesn’t increase your time to financial freedom if your savings rate stays the same. But as you correctly point out, if you already have money saved toward your goal, that can change the numbers significantly.

Thank you for the article and for sharing your spreadsheet. Items like this are great to see the big picture of retirement as it looms for us all.

I’m sliightly confused on the raising and lowering of the withdrawal rate. I understand that 4% is the “industry average” and seems to be the accepted rate to start. I’d expect though that if I raised my expected withdrawal rate over 4% then I would need more resources and not less for financial freedom because I’m consuming more (5>4) on an annual basis. In the spreadsheet it seems that the higher I indicate a withdrawal rate, the lower amounts I need for financial freedom.

Can you help explain?

Thanks!

Winston, the goal is to generate a certain amount of money each year to cover expenses. Let’s assume annual expenses before taxes are $50,000. If you believe you can safely withdrawal 5% a year, you’ll need $1 million ($1 million * 5% = $50,000). If, on the other hand, you think you can only withdrawal 4% without significant risk of running out of money, you’ll need more. After all, $1 million * 4% gets you only $40,000. We need $50,000. So to generate $50,000 with a 4% withdrawal rate, we need $1.25 million. Hope that helps.

Thanks helps a lot – thanks for the explanation. Playing around with the spreadsheet some more helped me clearly see your point. Based on my assumptions, only 7.6 years to go!

Maybe I am misunderstanding, but the “Withdrawal Rate” is the % of your retirement fund that you are pulling out every year (i.e. 4% of a $1,000,000 fund would be $40,000 per year), is that correct? If so, then why does the “Financial Freedom Fund” and the “Years to Financial Freedom” columns decrease if I change that number to 5%? Intuitively, if I draw more out of a fund, I need more to sustain it for X number years… Can you explain what it is that I am missing?

When you are determining the percentage of amount you save, are you including ALL monies you save? 401k, Roth, savings accounts, etc.?

How to download the calculator? I’m not able to edit.

The spreadsheet is read only and cannot be duplicated or saved. Perhaps the Google Docs sharing settings need adjusting?

I second *mirphi. This doc is not able to be saved or opened in google docs.

Sorry about that folks. Use this link to create your own copy–https://docs.google.com/spreadsheets/d/19Je5U1VlLNhNQuRuGGGLEtsXtXppmTCKvouajJ6IKFU/copy?usp=sharing

Thanks for posting the spreadsheet and keep up the great work. Big fan.

I’m interested in a calculator for early retirees that have no interest in retirement account penalties so figuring out how much is required to get to 59.5 years old. For example, I have a substantial portion of my assets in IRA/401Ks. I am 39 and hoping to retire before 50. I am looking for a target nest egg amount to take me from some early retirement age (say 49) to 59.5 where I can withdraw penalty free from IRA/401Ks. The IRA/401K amount should be sufficient to take me out the rest of my life using 3.5% withdrawal amount and still leave my kids a decent inheritance.

Of course there are too many factors in everyone’s situation for a calculator to be accurate, but I’d be interested in how the calculator works. Other factors that are too unpredicatble: 2 kids that may go to college in 3-5 years at who knows what tuition, health, I will still work on fun projects and make some money, but who knows how much, our interests will surely change in the next 10 years (more or less travel, hobbies, etc.).

Other than just have 10 times our expected yearly costs to last us from 49 to 59, there should be a better way. It would have a large amount of variance/volatility due to the very short planning period, but that can be somewhat alleviated by buckets…say 4 years worth of cash, 2 years worth of heavily diversified funds and 2 years worth of equity-heavy funds. Something like that along with a strategy to rebalance to take gains when available and invest cash when equities are down to take advantage of recoveries…like any rebalancing strategy.

Thanks again for your continued excellence.