How much money you need to retire at every age and comfortably live on investment income

To live on $65,000 a year, an investor would need to start with $3.8 million in a taxable investment account the day they retire.

Again, the investments are held in 80% stocks and 20% bonds, which is considered an "aggressive" asset allocation, due to the age of the investor.

An investor who leaves work at age 35 would need over $5 million in their taxable investment account to be able to live on dividends and capital gains amounting to about $100,000 a year, after taxes.

The ideal asset allocation is 80% stocks, and 20% bonds.

A 35-year-old investor would need about $2 million less on the day they retire if their target annual post-tax income is just $65,000. This assumes the same asset allocation of 80% stocks, 20% bonds.

An investor who leaves their 9-to-5 at age 45 and has a target annual income of $100,000 a year, after taxes, would need to invest a lump sum of $4.3 million in 80% stocks and 20% bonds.

A 45-year-old investor with a target annual income of $65,000 in dividends and capital gains, after taxes, would need a lump sum investment of $2.75 million on the day they retire, with an 80/20 asset allocation.

To live off $100,000 a year in dividends and capital gains, after taxes, an investor who leaves work at 55 would need $3.45 million in a taxable investment account.

The ideal asset allocation would be 70% stocks and 30% bonds, a more conservative allocation than a younger investor.

To live off $65,000 a year from dividends and capital gains, after taxes, a 55-year-old investor would need a starting balance of $2.2 million, with 70% invested in stocks and 30% invested in bonds.

For a six-figure annual income, a 65-year-old investor would need to invest a lump sum of $2,525,000 on the day they retire. The ideal asset allocation is 60% stocks and 40% bonds.

It's important to note two factors that are not included in this simulation but would likely look different in the real world: retirement accounts and Social Security.

An investor who retires at 65 is likely to have contributed to tax-advantaged retirement accounts during their career, which they would now be able to withdraw funds from, so the taxable investment account probably wouldn't be their sole source of income. In addition, anyone who qualifies for a Social Security benefit can opt to claim reduced benefits as early as age 62, and full benefits between ages 66 and 67.

To live on dividends and capital gains of $65,000 a year, after taxes, a 65-year-old would need a lump sum investment of $1.62 million in a taxable investment account, allocated as 60% stocks and 40% bonds.

The same considerations regarding tax-advantaged retirement accounts and Social Security income apply.

Fry used a Monte Carlo simulation to estimate the starting balance someone would need in an investment account the day they leave work to live on either $100,000 a year or $65,000 a year in dividends (fixed income from bond investments) and capital gains (income from equity investments), after paying taxes.

The following assumptions were used in the simulation:

Investments

• All investments are in a taxable account
• Used $8,333/month for $100,000 target annual income and $5,417/month for $65,000 target annual income
• JPMorgan long-term return estimates used for investments, 3% inflation used for conservative amount
• Assumed younger investors can take on more risk than older investors
• 5% annual portfolio turnover
• $0 capital loss carry over
• No asset-under-management fees included
• Lump-sum is invested at start of simulation as cash with no built-in gains

Taxes

• No state or local/city tax factored in
• Standard deduction taken for a single filer
• No Social Security payments factored in for older investors
• Dividends — 85% are qualified dividends, 15% are non-qualified dividends
• Capital gains — 90% long-term capital gains, 10% short-term capital gains
• Tax law — TCJA sunset 2025: reflects all updated provisions related to TCJA, including the sun-setting of most individual income tax provisions in 2025

Fry notes that the Monte Carlo simulation has two clear limitations: The outputs are only as good as the inputs and it does not factor in the behavioral aspects of finance, or how investors react to swings in the markets.