Assumptions: 5% annual investment return, 4% safe withdrawal rate ▼

Notice that the only way to significantly affect the time to retirement is to change the percentage of income that is invested – simply making more money does not help you retire sooner!

Definitions, Assumptions, Notes, Etc

Retirement is a question of having enough passive income to support you for the rest of your life. You can do it earlier than usual if you make sure the money you’re living off of will never run out. The purpose of this calculator is to be simple and to show that the most important part of reaching early retirement is the percentage of your income that you invest. It leaves out additional forms of income such as pensions, social security, side jobs, and others during retirement. It also leaves out, for example, equity in a home. These things can be compensated for with the “amount already invested” and the “living expenses during retirement” fields.

Yearly income: Income after taxes.
Passive income: Income that you get for doing nothing at all. In other words, you don’t have to actively work for it.
Safe withdrawal rate: the rate at which you can withdraw money from investments so that the the invested money will never run out, while accounting for inflation. For example, if your investments gain 7% value on average and you withdraw 3% then you are “safe” from depleting your investment if inflation is 4% or less. A safe withdrawal rate of 4% is based on this, this, this, and this.
Average return: the overall stock market return. No one has ever seen this exact amount as a return because the stock market is volatile. This is an inflation-adjusted return meaning it is lower than the actual average because it takes inflation into account. An average return of 7% is based on this, this, and this. I assume you’ve invested in a low cost index fund that represents the entire stock market, or the S&P500, for example.
Living expenses: money used for everything you need to live that is not an investment. Food, clothing, shelter, entertainment, travel, gifts, electricity, transportation, etc. (everything). Current annual expenses are the same as your future annual expenses!
Sufficient retirement investment: the amount of money you need to be able to withdraw at the “safe withdrawal rate” and cover all living expenses.

The Math

In order to cover living expenses without depleting your money (retire early), you need to have enough invested so that the money you withdraw at the safe withdrawal rate covers your living expenses. That’s how we get to the sufficient retirement investment. Given a safe withdrawal rate of 4%, we get the following.

(Living expenses) / .04 = (sufficient retirement investment)
Examples:
50000 / .04 = $1,250,000
25000 / .04 = $625,000
75000 / .04 = $1,875,000

We can then compute how long it will take to accumulate a sufficient retirement investment by using the compound interest formula. The more you invest, the faster you’ll get to the sufficient retirement investment amount.

No one can predict the future. The best you can do is prepare.

Try Early Retirement as Easy as Pie for further reading.