If you want to eliminate the fear of having basic needs met by working the fewest number of years possible, I believe you should work 10 to 18 years while saving 50% to 70% of your after tax income. The most reasonable way to go about it to work 18 years from 22 to 40 while saving 50% of your money.

1 Medicare

For premium free Medicate Part A, you need to have worked 40 quarters or 10 years [1]. You should probably work at least 10 years for medicare unless you can rely on your spouse.

2 Social Security

The way social security is setup, there is a maximum amount of tax you pay each year. For 2024 it is $168,600 at 6.2%. Each year this changes. To compute your benefits, you take the 35 highest earning years. If you max out each year, then it means you only need to work 35 years since they adjust the years for inflation. I don’t want to work for 35 years. So let’s look for when the marginal benefit goes down. There is a curve that determines your benefits identified by 2 bends. You get 90% up to the first bend, 32% up to the second bend and 15% until you hit the max. The number used to compute the bend is the average indexed monthly earnings (AIME). We can do some back of the envelop calculations with numbers from 2024 [2]. 1,174 for first bend point, 7,078 for second. 168,600 is the 2024 social security limit. The years for first bend point assume you max out is. 35*12*1174/168600 = 2.9 years. For second bend point it is 35*12*7078/168600 = 17.6 years. So you need to work 3 years to hit first bend point and 18 years to hit second bend point if you max out the social security taxes. The number of working years that are important are 3, 18 and 35. 18 years of work seems like a good upper bound. Moving from 18 to 35 years increases social security by about 35%.

3 Safe Withdrawal Rate

If you have an investment portfolio and only take 4% from it to spend each year, then you should be able to last 30 years without running out of money based on simulations of historical returns [3, 4, 5, 6, 7]. Even if you are really conservative, it doesn’t make much sense to go below 3.5% [8].

4 Returns

Vanguard target date funds are about 90% stocks and 10% bonds initially. If we look at predicted future market returns, we can take a ballpark estimate of 5% real returns even though historical S&P 500 real returns were 7% [9, 10, 11].

5 Savings Rate

Let’s take a 3.5% safe withdrawal rate and a 5% real returns to see how many years you would need to work at each savings rate to retire. Based on Table 1, 10 years and 18 years correspond to about 70% and 50% savings rate respectively. Shaq’s advice is to save at least 50% and save 75% if you want to become wealthy [12, 13].

References