How Much to Save for Retirement? Find Your Financial Independence Number
- Gin
- Aug 28, 2025
- 8 min read
Updated: Dec 3, 2025
If you followed along in my last post, you would have calculated your net worth, which tells you where you currently are in the rat race. The next logical question is: How much to save for retirement?
To escape the rat race, you must figure out your ultimate goal: What net worth do you need to achieve your Financial Independence Number?
Why is it important to figure out this target number? Well, imagine if you were in an actual physical race, except that there’s no clear finish line. You don’t know if the race is five miles, 50 miles, or hundreds of miles.
Would you even want to attempt a race without knowing where the finish line is? Personally, not knowing how far I need to run would kill any desire I have to even try. It would be impossible to prepare for such a race or to know if you’re on track to finish.
In this post, we'll go over the tools to find the finish line, so you know exactly when you can stop running.
There are two parts to estimating your target number:
Calculate your current annual living costs
Calculate your inflation-adjusted target number
STEP 1: CALCULATE YOUR CURRENT ANNUAL LIVING COSTS
First, we’ll need to figure out your average annual living costs. We’ll reference this number when figuring out your target number.
If you are already into budgeting and know your annual living costs, great! If you don’t, allow me to introduce you to something used in Japan called kaiekbo.
WHAT IS A KAKEIBO? (JAPANESE BUDGETING FOR BEGINNERS)
Kakeibo translates to household ledger, and it’s a little different from what most people think of when speaking of budgets. While a budget focuses on allocating how much money can be spent on different categories, a kakeibo simply tracks household spending. It's less about deciding how much money can be spent on certain things and more about being mindful of how money is being spent.
All expenses are tracked and categorized each month to understand what is money being spent on. While the goal of a kakeibo is not to limit spending, categorizing expenses makes it easier to spot wasteful spending and adjust spending habits as needed.
You can easily set up a kakeibo in any spreadsheet program or use a mobile a
pp. Searching for “kakeibo,” “spending tracker,” or “ledger” should pull up some options.
Track expenses for at least a month and multiply the total by 12 for a rough estimate of your annual living costs. Since spending can fluctuate greatly month to month, if possible, track expenses for a year or at least six months for a more accurate number..
KAKEIBO EXPENSE CATEGORIES: FIXED VS. VARIABLE COSTS
Whether you use a spreadsheet or an app, it’s up to you as to how specific you’d like your categories to be. But in its simplest form, all monthly expenses can be tracked in just three different categories: fixed expenses, variable expenses, and unexpected expenses.
FIXED EXPENSES (ESSENTIALS)
Think of fixed expenses as your minimum living expenses and any debt. In this category, you’ll track all recurring monthly expenses. This includes your monthly rent or mortgage payment, utilities, food (not dining out), gasoline, car loan and insurance, etc.
VARIABLE EXPENSES (NON-ESSENTIALS)
If spending ever needs to be reduced, this is the category you’ll want to check. Here is where you’ll track discretionary spending, such as clothes, dining out, travel, and your Netflix subscription.
Wait a minute, you say. Isn’t clothing an essential, and hence should belong in the first category? And what about dining out? I gotta eat!
I get where this can be confusing, but think about it. Nobody needs to have eight pairs of shoes and more shirts than can be worn in a week. And you most certainly can eat at home instead of ordering out. You make these purchases because you want them, whether for desire or convenience. You don’t need them.
Be honest with yourself when deciding if any item is a need or a want. If you can survive without it, it probably belongs in this category.
UNEXPECTED EXPENSES
When life throws you a curveball, this is where you’ll track that expense. This category is for one-off expenses, such as when your car breaks down or a medical emergency.
WHAT ABOUT TRACKING INCOME?
You’ll record any income from employment or side hustles in its own category. When recording any income from an employer, use the net pay amount. This is the amount after money for taxes, Social Security, insurance, and 401(k) has been taken out of your gross pay. Your net pay is the actual cash you have to spend.
KAKEIBO TIPS
Track monthly and annually: If using a spreadsheet, track your expenses by both month and year. Expenses will fluctuate each month. Heating and cooling costs change with the season, for example. Or you may have a big family vacation during the holidays. By keeping both monthly and annual data, you’ll have a comprehensive understanding of your spending habits.
Ideally, at the end of the year, your expenses don’t exceed your income. If it does, check to see if this was due to a large unexpected expense. If it isn’t, see what variable expenses you could possibly reduce.
Skip the details when needed: Let’s be real. Tracking expenses can be tedious, especially if you try to record each line item individually. Inevitably, you will run into a situation where a single store receipt includes purchases that overlap more than one category. For example, say you went to Costco to purchase both groceries (a fixed expense) as well as toys and clothes (variable expenses).
Don’t feel like you need to separate each line item into its proper expense category. If the majority of the Costco run was for non-essential items, then go ahead and record the entire receipt under variable expenses. It’s more important to record the spending than it is to categorize each item.
Round up: To make tracking income and expenses easier, use the following shortcut. Instead of recording every expense down to the cent, simply round up numbers to the nearest dollar. In the long run, it won’t make a huge difference.
STEP 2: CALCULATE YOUR INFLATION-ADJUSTED TARGET NUMBER
If you know your current annual lifestyle costs, you can now calculate your target number.
First, ask yourself what the ideal retirement lifestyle looks like. Perhaps you would like to spend twice as much as you do now. Or perhaps you’re satisfied with keeping things just as they are now. In the latter case, your spending in retirement could stay the same. Or it may even drop if you no longer have certain expenses, such as a mortgage. Estimate your future lifestyle costs based on these changes.
Next, you’ll need to adjust your new number for inflation. Then multiply that by the number of years you expect to live to arrive at your inflation-adjusted target number.
You may be wondering if it’s necessary to adjust for inflation. I know you may have heard of the 25x rule, which suggests saving 25 times your annual expenses for retirement. According to this rule, if your annual expenses are $50,000, you’ll need to save $1.25 million. The problem with this rule is that it assumes you’re retiring right now and not 25 or 30 years in the future.
If you’ve read my previous post about inflation, you know that the buying power of your money will drop significantly as years go by. In fact, a $50,000 lifestyle today will cost about $105,000 in 25 years. So it’s important to account for inflation. Otherwise, you may come up drastically short.
Yes, that does mean you might need more money than you think. But your target number will change dramatically depending on a number of factors. These factors include your retirement age, how many years until retirement, sources of income, etc.
If this sounds complicated, not to worry. You’ll use the free retirement calculator pictured below at www.calculator.net/retirement-calculator.html to estimate your target number.
USING THE RETIREMENT CALCULATOR: INPUT AND VARIABLES
To just get a target number, you only need to input numbers into the first two sections. The Optional section can be filled out to see how post-retirement income affects your target number and to see if your savings are on track.
Your current income increase: The first line assumes your income will increase 3% a year by default. Many, but not all, employers increase wages by about 3% a year to offset inflation.
If you don’t expect wages or other sources of income to grow, you can change this to 0%. What you enter here won’t affect your target number. This data is used only if you enter information into the Optional section.
Income needed for retirement: How much do you expect to need to pay for your ideal retirement lifestyle? Enter that amount as a percentage of your current income or a dollar amount here. Don’t worry about adjusting for inflation. Enter it in today’s money.
Average investment return: The percentage you enter here will make a big difference in your final target number. The default percentage of 6% is a very conservative number. If you’re properly investing, feel free to increase that percentage a point or two.
If, however, most of your money is sitting in a savings or checking account, you’ll need to lower that number. Depending on where you bank, that percentage could be as low as zero.
Inflation rate: Feel free to leave this at 3%.
Once you’re done, hit the green Calculate button to get your target number. This calculator will even show you how much you’ll need to save each month to reach that number.
But wait! We’re not done yet. I’m guessing your target number was larger than you were expecting. It’s important to note that the target number you saw doesn’t account for any sources of income you might have in retirement. Money you receive from Social Security, pensions, or a part-time job will make a huge difference in your target number.
Enter some numbers into the Optional section to see how post-retirement income lowers your target number and if you’re on track to reach it.
Other income after retirement: To see how post-retirement income affects your target number, enter the inflation-adjusted monthly income in the first line. You can use the Social Security Quick Calculator on the ssa.gov site to estimate your Social Security check.
Your current retirement savings: Enter how much you’ve saved so far to see how much more you need.
Future retirement savings: Enter how much you plan to save each year as a percentage of your income or a dollar amount. Play around with this number to see how quickly you can reach your target number. You might find out you can retire early!
How does your target number look now, and is your savings on pace to reach that number? Don’t lose hope if the initial number seems large! You know precisely how much to save for retirement, which is the most critical piece of information you can have.
By calculating your Financial Independence Number, you've turned a vague wish into a concrete goal. We still have a lot to do to improve your situation, but knowing the goal allows you to strategically increase the numbers that matter.
Continue playing with the following numbers to test out different scenarios to reach your retirement goal. In particular, see how small increases to your average investment return and future retirement savings make the biggest difference in how quickly you reach your goal.
Your current income increase
Average investment return
Other income after retirement
Future retirement savings
Increasing these four numbers will be the focus of future posts. Until then, I'd love know what you thought of the kakeibo or retirement calculator. Let me know in the comments below.
See you at the finish line!
Disclaimer: I’m not a licensed financial professional. This blog shares my personal experiences and opinions around money, investing, and early retirement. It’s for informational and educational purposes only—not financial, legal, or tax advice. Always do your own research or consult with a qualified professional before making any financial decisions.
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