You Might Need $3 Million to Retire at Age 65

You might need $3 million to retire at age 65 (if you are 28 years old today, which I am). See how I came up with that number below.

The purpose of this post is not to scare you into thinking you’ll never save $3 million dollars. It’s to expose you to how to think about how much you need to save for retirement. You might not need $3 million. But how much do you need and how do you calculate that?

Most people have no idea how to save for retirement, how much to save, where to save that money, etc. In everyone’s defense, there seem to be a lot of questions and it seems daunting to learn. But in reality, it is not that difficult to invest your money for retirement. I have already written a blog post about how you should invest in a target date fund in your 401k (as much as you can a year) and call it good. You (may) not need any other investments.

But a good question people should have is “How much do I need to save for retirement?”
If you were to retire today some people say you need $1 million.
That number is created by using the 4% rule, meaning you can withdraw 4% of your money a year to live off of. $1 million x .04 = $40,000 a year to live off of (plus social security).

It can also be called the 25x rule. This means you need 25x the money you will need each year to live saved. If you want to live on $40,000 a year 25 x $40,000 = $1,000,000

This is fine for today’s retirees, but for people between the ages of 20 and 30 we might have a different number to shoot for.

We have to consider inflation. To account for inflation any number of year from now there is a very simple formula.

1.03^37 = 2.98 

(a quick review of powers, 1.03^37 means 1.03×1.03×1.03… 37 times)


What do the above numbers mean?

.03 shows an inflation rate of 3% per each year (which is a historical average of US inflation)

37 = 37 years in the future (when I’ll be 65)

2.98 gives you the answer of how much less money will be worth in those years (inflation).

So 37 years from now it will take $2.98 dollars to buy something that costs $1 today.

So you can take today’s money $1,000,000 and multiply it by the inflation rate 2.98 and get that you’ll need $2,980,000 (or basically $3 million) in 2054 to equal $1,000,000 today.

And that is why you might need $3 million dollars to retire.

So the basic formula

1.03^ (years until you turn 65) x how much you want to live on per year in today’s dollars x 25


(1.03^37) * $40,000 x 25 = $2,985,226

This means you would need $2.9 million dollars ($3 million) to retire.

Of course, this doesn’t take into account the fact that many basic services of today like food, healthcare, housing, transportation, will likely cost less in the future. You might not need near this much saved! But then again, you might. It never hurts to over plan. If you find yourself in a position with too much money you can always give it away.

I don’t want to scare people away from saving for retirement if they don’t think they’ll have $3 million. As this CNN article says, even though a lot of people say $1 million today the average person who’s 65 only has about $148,000 saved which would be $148,000 x 2.98 = $441,000 if you were to retire in 37 years. Now we agree that like CNN said, $148,000 is probably  a little low, but not starving low. So you likely want to shoot for between $441,000 and $3,000,000. Use the rule of 25x to think about how much you might need to withdraw from your investments but also remember to account for inflation!

If anyone would like to review their own personal retirement numbers with me don’t hesitate to contact me. I really enjoy reviewing these numbers with anyone.

6 thoughts on “You Might Need $3 Million to Retire at Age 65

  1. It’s amazing how many don’t think about what it takes to retire until it’s too late.
    Too many today, and probably more as the years go on, develop a mindset that somehow the government will take care of them, that the rich will be forced to give up what they have so the average and below income earners will be able to retire as wealthy as they desire.
    And look at the public employees, which includes those in the education community, that are depending on retirement plans that just don’t have the funding necessary to deliver.
    I’d be as focused in looking for ways to not only save but to keep those savings.
    401ks are great but look to diversify to avoid the anticipated rise in taxes that will be needed to pay public retirement funds and our national debt that could eat up your nest egg quickly.
    Good blog post!

    • A 4% withdrawal rate assumes you could make that same withdrawal forever. It’s a “safe” withdrawal rate as the usual market return is 7% so your money should actually continue to grow! I don’t think we need to slow any life expectancies 🙂

    • Hello, Thanks for the question. You can use the 25X rule (also known as the 4% rule) to determine how much you need in retirement.
      If you want $200k you need 25x that in capital to generate that each year, so $200k x 25 = $5 million.
      Alternatively if you have $3 million x .04 = $120k/year safe withdrawal rate.
      Should look up 4% rule to understand it more.
      If you are retiring in 5 years perhaps you’ll have $5 million saved up by then? How much a year do you continue to invest?
      How much do you pay a money manager? If you are paying high fees, 1% or more you will want to find a cheaper adviser so you don’t pay as much as $30k a year in fees. If you are paying $30k in fees each year you’d have to consider that in your withdrawal rate $230k x 25 = $5.75 million instead of just $5 million capital needed. You should be able to find a rate that is .1% or $3,000 a year instead of $30,000. Fees are very important! Understand what fees you are paying for money managers. They will try to confuse you because they want to take as much of your money as possible.

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