Why I Disagree With Financial Samurai on This Recommendation

Financial Samurai is one of my favorite personal finance blogs to read. I like how Sam, the blogger, challenges me and provides valuable information that helps us solidify our investment strategy. I have nothing but praise for Sam’s work, but a recent recommendation with which I disagree prompted me to comment and, ultimately, write this post.

Financial Samurai provides great insightful advice for spouses to achieve early retirement in the post, Achieving The Two Spouse Early Retirement Household, and this is the part of the recommendation that I disagree with:

“Finally, instead of an income target, you guys can also consider a net worth target to achieve before both of you leave the workforce. My recommended net worth target is 20X gross household income.”

Financial Samurai

To be clear, I am not a financial advisor, so this is based on my own experience and is intended for discussion purposes only. Please don’t take this information as financial advice. 🙂

Income target

Instead of an income target, Financial Samurai recommends a net worth target based on household income. Before we get there, let me say that I am strongly opposed to retirement recommendations based on actual income.
The financial industry’s advice to “shoot for 70 to 80 percent of your pre-retirement income” does not bode well for retirement income needs because it overlooks the most important piece of information about a future retiree: their spending habits.

Basing retirement needs on income does nothing for anyone who saves more than the average personal savings rate in the United States, which is around 5.7 percent.

Net worth target based on household income

Financial Samurai’s recommendation of having a net worth of 20X gross annual household income would deter many people from retiring early, in my opinion.
I know Sam is more cautious when it comes to personal finance, but I think it’s a number too high to aim for and probably unnecessary for someone with a high savings rate. It all comes back to the old adage, “it’s not how much you make, but how much you keep.”

Net worth target based on annual spending

I like retirement advice based on annual spending. When I first encountered the FIRE concept, it appeared simple to grasp. To withdraw 4% from your portfolio, save 25X your annual spending, and you’re done with retirement savings. You can save more and withdraw a smaller percentage to increase the chances of your portfolio lasting a lifetime.

4% annual withdrawal rate = safe withdrawal rate

3% annual withdrawal rate = perpetual withdrawal rate

What factors influence how quickly you reach retirement?

Your savings rate is most likely number one.

The various methods for calculating retirement needs result in a variety of outcomes.

Let’s look at how a couple with an above-average savings rate can arrive at very different conclusions about how much wealth they need to retire based on the calculation they use.

Scenario 1: replace 80% of income

Juan and Mary are office workers with an annual household gross income of $175,000. They were told that they needed to plan to replace 80 percent of their income in retirement. Based on this method, they’ll need to aim for a retirement income target of $140,000 ($175,000 x 80%).

Scenario 2: Accumulate 20X their annual household gross income

Before leaving the workforce, Financial Samurai would advise this couple to aim for a net worth of 20X their annual household gross income, which is $3.5 million. ($175,000 x 20)

In reality, they only require $55,000 per year to cover their expenses. That’s what they live on. They’d be discouraged and perplexed as to why they’d require so much money. Can you see the disconnect?

Scenario 3: save 25X annual spending for retirement income needed

If we use the FIRE community-preferred method of saving 25 times annual spending and plan to withdraw 4 percent per year from the portfolio, they’d only need about $1.4 million in income-producing assets ($55,000 of annual living expenses x 25). Even if you add an extra $500,000 to buy a house to live in, you’re still far from the $3.5 million recommendation.

If you want to retire and never have to touch your principal, you can save more and aim for a 3 percent perpetual withdrawal rate. (Again, I’m linking to Financial Samurai because I enjoy his content.) This couple would then require approximately $1.8 million to be able to withdraw 3% of their portfolio annually. ($55,000 in annual living expenses multiplied by 33.3). Telling them to accumulate $3.5 million in net worth is akin to telling them to work until they are 65. That is not considered early retirement.


As you can see, there is a significant difference between the calculations! Even at a 3% withdrawal rate, they will not require $3.5 million to retire. A 3% withdrawal rate is bulletproof. That portfolio would last indefinitely.
I’m confident that Financial Samurai readers have high savings rates because these people, like myself, enjoy saving and investing. One cannot exist without the other. So they’re unquestionably in Juan and Mary’s camp.

What are your thoughts? Which method of calculation do you employ? Based on their annual income and spending, how much would this couple require? On what would you base their retirement figure?


After dedicating 13 years of his career to Vanguard, José retired from the corporate world at the young age of 44. During his tenure at Vanguard, he expertly coordinated the production of both electronic and print educational materials for 401(k) participants. Now, he relishes in his early retirement, cherishing time spent with his family, indulging in his favorite hobbies, seeking out new experiences, and savoring meals in the comfort of his own backyard.

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7 years ago

Hi Aperture,
Yes, if there is one sure thing about the future is its unpredictability and the best we can do is prepared to be flexible with the withdrawal rates in retirement. The assumptions are usually based on a retiree never making another dollar but you’ll be doing it the right way by staying active.
I stay diversified to lower risk so I’m not too concerned with the lower returns predictions. It’s like the song “Don’t worry, be happy”. Keep saving and investing and the future will take care of itself. Great comment! Thanks for stopping by!

7 years ago

Hey Enchumbao – nice succinct review of SWR. It seems like this is a topic that can be endlessly mined for new perspectives because (1) it is all about looking into the crystal ball to predict the future and (2) everyone’s response to the unknowable future is different – some want a really big life raft, while others are happy with water wings and swim lessons. Personally, I am interested in frugality as a means of preserving the planet and financial independence as a means of preserving my own sanity. Thus, I am OK with a 4% SWR knowing that I may need to flexibly respond to adverse sequence of returns. Besides, I do not plan to spend my retirement looking at daytime TV. I look forward to developing my hobbies and one of the greatest acclamations I can experience is having someone pay me for something I made or did for pleasure.
I have one little rant: It seems like EVERYONE is stating it as a known TRUTH that US equities will have lower returns in the next 30 years than they did in the last 100 years. I agree that it is reasonable to predict this from the high valuations on equities. But so many are prediciting this that I think most have forgotten that the truth is no one knows what will happen next. This is what makes it all so exciting and fun to be alive. Best wishes.

Financial Samurai
7 years ago

$1.4M vs $3.5M, what’s the big difference? 🙂

Yes, I am under the assumption that we shouldn’t touch principal and should leave some of our wealth to help other people once we are gone. Healthcare costs, medical costs, a downturn in the markets have a great way of making money DISAPPEAR.

Everybody is lulled into a bull market. I’m preparing for less smooth scenarios.



7 years ago

Just a few pennies of a difference. 🙂 I’m assuming that healthcare and medical costs are estimated in the projected expenses when calculating amount needed to retire comfortably.

A more conservative withdrawal of 3%, described above, barely touches principal. Thanks for stopping by! I enjoyed reading your article, it provides great advice overall.

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