The more you save, the sooner you can retire. But how much do you actually need to save before retiring? Business Insider reporter Lauren Lyons Cole breaks it down in this video. Following is a transcript of the video.
How to retire at 40: First, figure out how much you spend each year, then divide it by 4% (0.04). This is how much you need to save before retiring.
Once you know your goal, you can leave work as soon as you reach it. But to make this work you have to invest your savings.
You can only survive for 25 years on these savings alone. So, if you retired at 40 you would have to start working again at 65.
But there’s a way to make it stretch even longer. Continue to invest and earn at least 5% on your investments each year, then you will have enough to live on for the rest of your life.