Do you want to retire in ten years? Sounds great, but how can you achieve this?

The answer is always the same, live well below your means, work to cut out unnecessary spending, save and invest! There are tons of articles on these subjects and no real magic.

The question is exactly how much do you need to save today based on your income needs, existing retirement savings, and time to retirement for such a short window?

There is no magic but having a better understanding of the savings rates needed to have a reasonable chance of success would be valuable. To answer this question, we are going to run many Monte Carlo simulations to provide guidance on the specific savings rate to retire in ten years (or less).

Note: This is a long post with a great deal of data. I will try to summarize and simplify the results as much as possible.

# Disclaimer

*Warning: Please don’t take your financial advice from a random blogger you found on the internet. We provide this as a reference for your own Financial Independence journey. You should always validate the information against your own personal situation. *

*These results are based on modelling using historic data and there is no guarantee the results will be the same in the future. These are also based on some very specific set of assumptions for this example and will not be the same for your situation. This data may be helpful as one data point to help validate your own plans but only you can decide what is right for your situation. We provide a basic version of our Monte Carlo Simulator tool free of charge on the website for you to understand the calculations and math behind this and to modify the tool for your own use. *

# Background

Early in our own retirement planning we discovered a series of book by Phil Demuth and Ben Stein that laid out a roadmap of savings rates needed to achieve a secure traditional retirement. The best part of these books is they laid out some simple tables to check your progress. You can simply look at your current age, amount saved and see how much annual savings you need to have to achieve your goals.

These were great, but their assumptions were for a more traditional retirement plan, work till your 70 and have a 35-year retirement. More details on these books are covered in the book reviews below.

I wanted to see how we could apply this same idea but using assumptions more aligned to the Financial Independence community where our retirement windows may be 55+ years and our working period would be significantly less.

I also want to look at the one of the most aggressive plans, can you work for 10 years and retire? And how much do you need to save to achieve this? I’ll say up front if you have no savings today a ten-year retirement goal will require significant sacrifice today but could have a big payoff for the rest of your life.

# Monte Carlo Simulation Modification

We took our Retirement Simulator spreadsheet and with some extra visual basic coding created a multiple variable simulation. That is why I love our version of the tool, with a little work you can modify it for different calculations based on your situation.

In the modified version, it allows the option to run simulation for a variety of data ranges including

- Retirement Age
- Existing Savings
- Savings Rate

We used this multi-variant sensitivity simulation to compute the probability of a successful retirement for all these cases. In all we simulated 2,300 different scenarios, each running the Monte Carlo simulation of 1000 lifetimes. That is 2,300,000 lifetimes simulated! This took about 4 hours of processing on my Surface 3 Pro.

We also added a new feature to allow for income growth above inflation. More on that in the assumptions below.

# Model Setup

For this model we wanted to normalize the results, so anyone could use the reference data and estimate their needed savings rate. We base everything on your income level, so the savings rate is a % of your total income and your current retirement savings is a multiplier of your income. For this model we set the following ranges- Years to Retirement from 10 years to 1 year (used Age range from 20 to 30)
- Savings Rate from 0.25% to 0.80% of income, at 2.5% increments
- Existing Savings from 0x to 9x your current income.

For inflation and investment performance, we use the following values based on historic references. The investment performance is based on 90-year data for Index Fund Advisor. More details below.

# Baseline Scenario

The following is the initial scenario we used for the model. The actual salary does not matter for the output since all the results are relative to income, so the multipliers and savings rates can apply to any income level.

For the model we used an initial annual income of $60,000.00. Initial savings rate is 50% of income (but this will vary based on the simulation) and the income need for retirement is 85% of their current spending level. Current spending is assumed to be their income less their savings and includes things like taxes. More details are in the assumptions below.

# The Assumptions

To set all the model the parameters, we had to make some assumptions for this model. The following are the assumptions we used. These are likely different than your own case, so you will need to review and understand how your situation may be different.## Saving Rate

- Savings rate is inclusive of any company match. You should consider the company match as income but only if you are sure it will be vested by your retirement date.
- 5% wage growth above inflation, based on a young person starting out as new college hire. Initial ten years will see high wage growth. Based on average 3% inflation and a 2.5% wage growth the chart below would be the average salary progression over ten years. This does assume a person in their early career where they could expect higher wage growth. Our representative person starting out of college earning $60,000.00 would be earning about $97,000.00 after ten years. This is a reasonable assumption, but you may have a greater acceleration of income. We provide charts for every year in the ten-year period, so you can re-adjust your savings rate if you have a higher or lower wage growth.

- Wage increase is split between spend and savings per the ratios above. This allows for a little lifestyle inflation. This is also added to the expected income need growth for retirement.
- Do not calculate for savings rate above 80%, this is likely not realistic either. Past 80% it does not seem practical since income taxes will need to be covered from the remaining income. Even if you are just out of school, still live at home, and have no expenses that is not practical for ten years. If you could get one to two years at 80% savings rate that would provide good savings base.
- Assume income need grows with wage growth, allow for a little lifestyle increase. We keep Saving Rate constant across the simulation for a given lifetime. If you can put all your income growth into savings and keep you spending constant for ten years, then you would be slightly ahead of these scenarios.

## Income Need

- We assume spending, including taxes, is the remaining income after savings. If the savings rate is 50%, then we assume you are spending the remaining income. That may mean after tax, you may be living on only 35% of your income depending on your tax rate. Need to consider that when looking at you savings rate.
- Assume 85% of spending of current spending is need for retirement after adjusted for inflation. This is assuming less taxes on reduced income needs in retirement and assumption other spending levels will decrease since you are no longer working.

## Retirement Length

- Plan for a 55-year retirement. In previous models, we saw longer retirement windows did not have significant effect on the overall success probability. Once you factor out the sequence risk of running of savings in the first ten years, the survival rates did not change much. This is an area we want to do some more investigation.

## Investment and Inflation

- 90-year historical performance for investments. Pre-retirement used the 90 Portfolio, Post-Retirement uses the 50 Portfolio based on the data available from Index Fund Advisors.
- 3% inflation rate based on long term historic data.
- We did not break out pre-tax and post-tax retirement savings. There can be some optimization for tax purposes, but we did not consider that in this initial study. You will need to review your own situation and savings strategy. For an early retirement it is good to not have all your retirement savings in tax deferred accounts but if you do there are still ways to access this money before age 59.5 without penalties.

## Probability for Success

- We determine success as 95% success based on the Monte Carlo simulation. Success means that in 95% of the simulated cases your savings would outlast your projected lifetime. This should have real world experience closer to 100% based on previous studies. These suggest a 93.4% result from a Monte Carlo analysis would be equivalent to a 100% success in the real world. Since our model with 1000 runs seems to have a +/- 1% variations compared to a 10,000-run model we used 95% to provide a little margin.
- Ran 1000 lifetimes per Monte Carlo simulation. We see about a +/-1% variation compared to a higher number of runs but 4 hours was already a long simulation time.

After modifying the model and verifying the results we ran 3,200 scenarios to looks at the savings rate needs based on our assumptions. It took about 4 hours to calculate all the scenarios.

The first set of data is to look at the probability distribution of savings rate to achieve the ten-year retirement target. This assume no initial savings. These are the minimum results that had at least a 95% probability of success.

If you are just starting out and have no savings, you need to plan to have a savings rate that is about 70%! As you get down to 50% savings, the probability reduces quickly to about 13.9%.

That is a significant savings goal but there are people who have achieved this. This type of savings is far from typical, but if your personal goals is to retire extremely early it is possible.

Please don’t let these numbers scare you!

A ten-year retirement goal with no savings is very aggressive and as we will see in the later data even having one year of income saved makes a decent difference is savings rate and if you currently have five times your income saved you can reduce your savings rate down to 50% to retire in ten years.

50% savings rate is still a big savings target but is achievable. Mrs. FoF and I have been able to adjust our budgets to be very close to 50% savings rates. It does take some re-prioritization of your goals.

The table below shows the 95% probability level for savings rate based on years to retirement and existing retirement savings as a multiplier of current income.

## Using this Chart

### What do I need to retire in ten years with no savings?

- You need at least a 70% savings rate to retire in ten years with no existing savings.

### I have saved three years’ worth of income, can I retire in 5 years?

- For the same 70% savings rate above you can retire in five years!

### If I have 2x income saved, what savings rate do I need to retire in nine years?

- You need at least 65% savings rate.

When you have a low savings, the saving rate numbers are aggressive but possible. If you had 9x your income saved, you only need a 37.5% savings rate to retire in ten years. Save at a 50% rate you could be ready in only four years!

# The Complete Data Set

Here are the complete set of charts used to create the summary table above.

If you would like the full Excel pivot tables, send us a note using form below or leave a comment in the comments section at the end of the article.

## 0x Income

## 1x Income

## 2x Income

## 3x Income

## 4x Income

## 5x Income

## 6x Income

## 7x Income

## 8x Income

## 9x Income

## How do you use this data?

To use this data for your own situation, need to make two simple calculations

- What is your current savings allocated for retirement divided by your current gross income? Include 401k match but don’t include bonuses (unless these are guaranteed) in your income estimate. Don’t include your house value in your savings unless you plan to use this in retirement by selling and funding your retirement savings.

If you earn $60,000 and you have $85,000 saved for retirement that would make your savings about 1.4x your income

- What is your current savings rate? Take all your savings for retirement including the company match and divide by your gross income.

## Example 1: Probability of Success

If you make $60,000.00 without counting the company match. You save 15% to your 401k and the company matches 6% plus you save an additional ~5% in your Roth. Outside of deferred savings plans you also put away about $200 per month. Your annual savings of $18,000.00 divided by your gross income would be $63,600 your savings rate would be 28.3%.

You than would round down your savings multiple to 1x, find the ten-year row and look up the closest savings rate to 28.3%. In this case we round down to 27.5% savings rate and your probability to be able to retire in ten years is not great at 0.1%.

- Example 1: Looking Up Probability of Success

## Example 2: Savings Rate

To retire in ten years, with a current savings balance at 1x income, look at where the probability is 95% or greater and we get to 65% savings rate which is over double the initial savings rate.

So, if ten years is really your goal you need to review your spending and see where you can save more to get closer to that 65% rate.

- Example 2: Looking Up Savings Rate

# Example Scenarios

These charts can work for anyone who is approaching their ten-year window for retirement. Here are some additional examples

## Example 1: How Much do I have to Save?

You have a ten-year retirement goal and have a nest egg equal to 8x your income. Pulling up the 8x income chart, we look for the ten-year row and at what savings rate has at least a 95% success rate.

You could retire in ten years with a 40% savings rate. Bumping the savings goal to 50% could reduce that by five years!

## Example 2: How Soon Can I Retire?

If you have a savings rate of 50%, with 7x income saved. Pulling up the 7x income chart, we look for the row with the closest probability of 95% for a 50% savings rate.

From the table we see at a 50% savings rate, 7 years has a 96.7% probability for success.

## Example 3: Can I Retire Next Year?

You managed to save 9x your income and are saving at a 60% or higher rate. Pulling up the 9x income table, and looking in the last column for 1-year retirement what is our change for success at a 60% savings rate?

We see we have a 97.5% change of success to retire next year!

If 60% is too aggressive, adjust to 50% savings to have a high standard of living today and you can still retire in 4 years with a 96.6% chance of success.

Note: In the model, spending is inverse to the savings rate. Your spending is a big factor in the size of the savings needed to ensure success. You need to have spending level below the level to achieve a safe withdrawal rate. In the 9x savings chart:

- At 40% savings rate, the model assumes you spend the remaining 60% of income. At 9x savings that would only be about a 6.7% withdrawal rate. With only one year to retirement there is not enough time to increase the total savings such you would achieve a safe withdrawal rate, in fact it only has about a 64% chance.
- At 60% savings rate, spend would only be 40% of income. This is about a 4.4% withdrawal rate. With one more year of compounding plus savings you would likely be below a 4% withdrawal rate.

# Yearly Review

This data is not intended to be used as a onetime planning event. At least once a year you should review your plans and gauge if you are on track or need to adjust. So many things change over the course of ten years it really is impossible to predict.

The following tables are broken down by year, so you can review your plans annually based on how close you are to retirement.

# 10 Years to Retire

## Example

Savings = 6x Income

Required Saving Rate = 47.5% with a 96.4% change for success

Savings = 3x Income

Required Saving Rate = 57.5% with a 95.9% change for success

# 9 Years to Retire

## Example

Savings = 2x Income

Required Saving Rate = 65% with a 97.0% change for success

# 8 Years to Retire

## Example

Savings = 2.6x Income (round down to 2x in chart)

Required Saving Rate = 67.5% with a 97.6% change for success

# 7 Years to Retire

## Example

Savings = 2.9 Income (round up to 3x in chart)

Required Saving Rate = 65% with a 96.1% change for success

# 6 Years to Retire

## Example:

Savings = 3.2 Income (round to 3x in chart)

Required Saving Rate = 67.5% with a 95.8% change for success

# 5 Years to Retire

## Example:

Savings = 6x Income

Required Saving Rate = 57.5% with a 94.9% change for success

# 4 Years to Retire

## Example:

Savings = 2x Income

Required Saving Rate = Best change is 80% but only at 93.4% probability. Likely need to re-adjust timing plans for retirement.

# 3 Years to Retire

## Example:

Savings = 8x Income

Required Saving Rate = 57.5% with a 96.3% change for success

# 2 Years to Retire

## Example:

Savings = 9x Income

Required Saving Rate = 55% with a 96.4% change for success

# 1 Year to Retire

## Example:

Savings = 9x Income

Required Saving Rate = 60% with a 97.45% change for success.

Note: This is higher than the 2-year savings rate for 9x income, why? At first this does not make sense but there are two factors at work

- With two years you have advantage of the savings to multiply over two years before retirement, with only one year you have less time for compounding.
- In the model, spending is inverse to the savings rate. You need to have spending level below the level to achieve a safe withdrawal rate.
- At 40% savings rate, the model assumes you spend the remaining 60% of income. At 9x savings that would only be about a 6.7% withdrawal rate. With only one year to retirement there is not enough time to increase the total savings such you would achieve a safe withdrawal rate, in fact it only has about a 64% chance.
- At 60% savings rate, spend would only be 40% of income. This is about a 4.4% withdrawal rate. With one more year of compounding plus savings you would likely be below 4% withdrawal rate at 60% savings rate.

# Summary

Again, there is no magic in retirement planning. Save more, spend less, and manage your investment risks.

The data from this study hopefully gives you a better understanding of the savings rates needed to have a reasonable chance of success in the ten years prior to your retirement date. If your goals it to retire in ten years and have not started saving, then you need to get very aggressive now in saving and investing. It is achievable but will take work.

The longer your time to retirement and the higher your savings the more likely you will succeed. Don’t get discouraged if you can’t meet a specific target date. Retirement planning is a journey and you should enjoy your life along the way. If reducing your savings rate may allow for more enjoyment today that may be the right tradeoff for a slightly longer journey.

*Disclaimer: As we mentioned early, there are many assumptions made in this analysis. Your situation is likely different. You would need to make our own judgement on the appropriateness of this data. The models rely on assumptions of the future based on historic data and there is never a guarantee this will hold true in the future. Please use your own good judgement to decide what is right for you.*

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# Monte Carlo Simulation Tool

The version we used in this study is still under development and not yet ready for release. We offer a free basic version of the Monte Carlo simulation tool (Version 8). This only allows a single simulation at time. We will continue to offer Version 8 for free on the website but will not get most of the new features, only bug fixes as needed.

#Retirement Planning and Simulation Tools

We are also sending out Version 9 of the tool for those who subscribe to the blog. Version 9 has additional features and improvements including a histogram of retirement savings at the start of your retirement. If you subscribe we will send you an email updates as we continue to improve the tool and add new features. We plan to offer the full sensitivity study version used in this analysis but given the advanced nature of this tool will not share this publicly.

# The Full Data Set

We have the full tables this analysis is based on available in Excel. If you want a copy of the full data output from the simulation in Excel with the pivot tables, send us a message or comment below. We will send you a copy. You can review the data set from the simulation and run your own analysis. We will not be sending this out automatically to subscribers so drop us a note if you would like a copy.

# References and Links

**Determining Withdrawal Rates Using Historical Data**William Bengen, 1994**Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable**aka The Trinity Study, Philip L. Cooley, Carl M. Hubbard and Daniel T. Walz , 1998**I’m Bill Bengen, and I first proposed the 4% safe withdrawal rate in 1994. Ask me anything!**Reddit AMA Post from William Bengen, 2017,**The Trinity Study And Portfolio Success Rates (Updated To 2018)**Wade Pfau, 2018- Portfolio Performance Data from Index Fund Advisor Portfolios
- Historic Inflation Data
**Does Monte Carlo Analysis Actually Overstate Tail Risk In Retirement Projections?**, Derek Tharp, 2017- You Need a Budget (YNAB) Note: This is a referral link, if you choose to join we both get a free month of YNAB!