How much do you need to retire on $40,000 a year?
Savings needed to retire on $40,000 a year
The withdrawal rate is the share of your savings you take out in the first year of retirement, then adjust for inflation. A lower rate is safer and needs a bigger pot.
Spending $40,000 a year
| Withdrawal rate | Savings needed |
|---|---|
| 3% | $1,333,333 |
| 3.5% | $1,142,857 |
| 4% | $1,000,000 |
| 5% | $800,000 |
Before taxes. Does not include Social Security or a pension.
How much to save each month
To build $1,000,000 from zero, the monthly saving depends on how long you have and the return you earn.
Reaching $1,000,000
| Years to save | Monthly at 6% | Monthly at 4% | Monthly at 8% |
|---|---|---|---|
| 15 years | $3,485 | $4,087 | $2,962 |
| 20 years | $2,205 | $2,748 | $1,757 |
| 25 years | $1,479 | $1,965 | $1,100 |
| 30 years | $1,026 | $1,459 | $710 |
| 35 years | $728 | $1,111 | $467 |
Saved at month end. Returns are not guaranteed.
Inflation: what you will really need to spend
Prices rise, so $40,000 a year in today's money costs more later. With 2.5% inflation the same lifestyle costs $65,545 a year in 20 years, so the savings target based on the 4% rule grows with it.
$40,000 a year in today's money
| When | Spending needed | Target at 4% |
|---|---|---|
| In 0 years | $40,000 | $1,000,000 |
| In 10 years | $51,203 | $1,280,085 |
| In 20 years | $65,545 | $1,638,616 |
| In 30 years | $83,903 | $2,097,568 |
Illustration at 2.5% a year inflation.
Social Security and other income
Social Security, a pension or part-time work can lower the amount you need to draw from savings. If those cover $12,000 of your $40,000 budget, you would only need to fund $28,000 yourself, a target of about $700,000 at 4%. You can see your own Social Security estimate at ssa.gov.
What the 4% rule leaves out
- Taxes: withdrawals from traditional 401(k) and IRA accounts are taxed as income.
- Healthcare costs before and after Medicare begins at age 65.
- Inflation, which raises spending needs every year.
- Market falls early in retirement, which can shorten how long savings last.
Sources and further reading
Questions people ask
How much do I need to retire on $40,000 a year?
What is the 4% rule?
Should I count Social Security?
Results are estimates for information only, not financial advice. Read the full disclaimer.