How Much Do I Need to Save to Retire by 40?


How much do you need to save to retire by age 40?  The simple facts are: if you save early, save often, and invest your money wisely it has the potential to grow. In fact, it might grow to the point whereby you can consider retiring earlier than most.

Financial independence facts to remember

Financial Independence (FI) is a simple concept and with some planning and discipline (a little luck helps too), it is certainly achievable.

We believe FI is the status of having enough income to cover your living expenses for life – without ever having to work for money unless you want to.

Realizing financial independence takes a plan, some multi-year discipline, and ideally one or both of the following:

  1. For every additional dollar you save, you can invest that money so it can grow your wealth faster, and/or,
  2. You can realize financial independence by consuming less.

Use of either lever will do, however, here at Cashflows & Portfolios, we suggest you optimize both.

You can check out this post on if you should start investing.   When you are ready to start investing, you can build a low-cost, tax-efficient portfolio using ETFs here. 

The math for early retirement is actually quite simple

The math is simple, the more you save, the faster you’ll achieve your goal. Sure, your portfolio rate of return is important but it only matters once you have a modest amount of money invested anyhow.

For the vast majority of us, it’s actually going to be your savings rate that will be your largest determinate of wealth-building potential.

If you are spending close to all of your income, well, you’ll probably never retire how you want.

For someone in their 20’s, saving close to 10% of their net income throughout their working career, while good, they’ll probably retire comfortably in their mid-60s just not anytime soon.

On the other hand, assuming you save somewhere between 25% or even upwards of 50% of your after-tax income, now we’re really playing with F.I.R.E (see what I did there?). That’s the aggressive saving stuff that financial independence is made of. The math for early retirement is simple but the multi-year discipline is not easy.

If you know your savings rate, if you can maintain a high savings rate over a sustained period of time – we can easily determine your years to FI.

Let’s use an example.

How much do you need to save to retire at 40?

Our friend, Michelle, is 25 and a recent grad and makes $75,000 per year as a Software Engineer in Ontario.

Michelle was able to convince her boss she can work from home since the pandemic began – and it has worked out in her favour!  Since the big city life would come with higher living expenses. She decided to work from home while living in Kingston where she was born and raised, and works.

Rent is modest at $1,200 per month for a 1-bedroom apartment and living expenses remain quite reasonable in this city.  She no longer needs a car to get around town, so she sold it and put a few bucks in her TFSA. She now decides to Uber/Lyft when needed, otherwise, walking or biking around town will do.

Her cellphone plan is paid for by her employer – that’s a bonus.

She negotiates her internet fees every year to keep those in check and keeps “extras” like Netflix at nominal costs.

Michelle enjoys hanging out with friends on the weekend, so she doesn’t mind spending some money every few weeks to treat herself.

Michelle knows she can save upwards of 50% of her net income because she’s already downloaded the FREE cashflow spreadsheet from Cashflows & Portfolios with her free subscription! (Great work and thanks Michelle!)

Retire by 40 - Michelle

And her expenses go on….

But essentially, because she got the major decisions in life right to date – housing and transportation – her savings rate will be higher than most her age.

As a smart Dalhousie grad, Michelle learned the simple math to early retirement – so we’re sharing her case study with others today. She knows if she continues to work hard, saves on average about 50% of her after-tax income over time, she’ll be largely “set” by the time she is age 40.

And she’s right:

Free source:

You can see if Michelle keeps her consumption largely in check over the coming 16-17 years or so, while saving about half of her take-home pay, she’ll be financially independent.

You see by the power of the graph as well.

The higher your savings rate, the faster your money gets working, the shorter your timeline to financial independence.

Alternatively, if Michelle only saves 20% of her net income, while still good, there is no way she can achieve financial independence by age 40. At that savings rate, starting at age 25, Michelle will only become financially independent 35 years later.

The details behind the investments, accounts and taxation when retiring at 40 – Cashflows & Portfolios Projections Analysis

To help you see the greater, visual power behind saving, and earning a decent rate of return (investing in predominantly equities for the coming years), we show you using our projection tools the amount of wealth you can generate about 15 years starting your investing journey at age 25.

Assuming you, like Michelle, max out contributions to your Tax-Free Savings Account (TFSA) every year, strive to max out contributions to your Registered Retirement Savings Plan (RRSP) each year, and with any money leftover you build a modest non-registered investing account, the results can be phenomenal.

Michelle Retire at 40 NW

For Michelle, we have assumed she will earn about 6.5% equity returns (plus 2% inflation) between now and age 40 using some of the low-cost ETFs we highlighted (and own) in this article:

Build wealth using low-cost ETFs here. 

For her after-tax spending, you’ll see in the chart below she can sustain spending approaching $48,000 per year when Michelle is 40.  In today’s dollars, that’s $35,400 after-tax, which means she’ll have more disposable income than during her working years!

Michelle after-tax spending Retire at 40

Throughout our exercise, we’ve assumed a modest 2% rate of inflation.

Finally, let’s show you Michelle’s potential drawdown strategy should she wish to retire around age 40 after building her $700,000 portfolio in 15 years with a disciplined, average 50% savings rate over that period.

Michelle draw down Retire at 40

From a tax efficiency perspective, it makes sense to draw down mostly from Michelle’s non-registered account first in her 40s, then the remainder from her RRSP.  TFSA contributions stop but as TFSA contribution room continues to build.

By the time Michelle gets to her 50s, TFSA assets are now being withdrawn. Incredibly, thanks to the power of tax-free money inside that account, Michelle can largely withdraw from her TFSA throughout her 50s and pay essentially zero tax.

As Michelle gets into her 60s, she will receive Old Age Security (OAS) at age 65 and we’ve decided for this example to defer Michelle’s Canada Pension Plan (CPP) benefit to age 70 – to ensure she receives the maximum income available from CPP based on her limited contribution years.

In future dollars, you can see Michelle is able to spend $86,000 per year from her portfolio.

While non-registered and TFSA assets are long gone in Michelle’s senior years, she can take comfort that the sum of OAS, CPP and remaining RRSP/RRIF (Registered Retirement Income Fund) income streams are enough to meet her spending needs.

What if…?

Of course, life is not a straight line.

How Michelle believes the next 15, let alone the next 60+ years might play out and how it will actually play out are two very different things.

In our case study, our savvy software engineer from Ontario might decide to buy a home. She may decide to get married. She could instead decide to travel the world and leave engineering far behind; opting for freelance opportunities around the world.

Michelle might change careers eventually, becoming a fee-only financial advisor wanting to help others with their money or maybe she stays with engineering to become a successful entrepreneur who builds app whereby you can do all these projections, at home, in minutes.

The future is always financially cloudy.

Yet our case study is designed to show with a disciplined, high savings rate coupled with smart, low-cost investing, wealth building can occur to tremendous heights from age 25 onwards. Some form of retirement or work on your own terms is very much possible in about 15 or so years assuming you save 50% of your after-tax income and invest that money wisely.

Final thoughts on how much to save to retire by 40

Early retirement is simple but for most, requires a very high savings rate.

Saving enough is your first priority and investing wisely is your second priority. Doing that though, you’re well on your way to early retirement.

In future posts, we’ll share how you can retire by age 50 and by age 60. These case studies will assume you started saving later in life but you can still realize some retirement dreams all the same.

Stay tuned for those case studies!

To help you plan for your retirement and help solve the retirement decumulation puzzle, let us know if there are any specific scenarios that you would like to see.  As well, make sure you subscribe to our site so you never miss a post!

If you are interested in obtaining private projections for your financial scenario, please contact us here to get started.

Disclaimer: Any information shared on our site (“Cashflows & Portfolios” or related to our site, is for awareness and illustrative purposes only. 

We thank you for reading and sharing!

Further reading:

You can carry a mortgage into retirement – if you have a great plan. Read on in this early retirement case study.

When to take Canada Pension Plan (CPP) in retirement – find out what works in this case study here. 

To help you invest, check out these very comprehensive posts:

Everything You Need to Know about TFSAs.

Everything You Need to Know about RRSPs.

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Disclosure: Cashflows & Portfolios is reader-supported. When you buy through links on our site, we may earn an affiliate commission.

5 thoughts on “How Much Do I Need to Save to Retire by 40?”

  1. I would like to see your CPP calculation. Even though you delay CPP to 70, this person has only worked 15 years at max YMPE. This would hugely reduce the CPP amount.

    • Very fair with only 15 years at YMPE but we also put inflation at 2% for CPP and did not include a couple of years worked/contributed to CPP at age 22+; included estimates about enhanced CPP.

      Your overall point is very valid – early retirement poses “income security” risks with CPP, OAS, etc. CPP could be very low for any single or couple striving to retire early. It puts the personal investment liability on the investor for sure.

      Are you relying on CPP (a little, a lot?) for your retirement plan Dave? Some folks we are talking to are considering it “gravy” per se.

  2. Thank you for your reply. To answer your question, one does not know if one will rely on their CPP or consider ‘gravy’ until they do an accurate calculation. That’s all I was asking to see… Your CPP calculations. In this example I am surprised CPP would make up 30% of her income based on only 15 years of contributions.

    I understand the article is to illustrate the importance of starting early, but I think it is also a little unrealistic to use a baseline based on a newly graduated single 25 year old’s life experience living in a one bedroom apartment with minimal expenses.

    If life has taught me anything in my 52 years… It is that every day brings something expected. Sometimes good… Sometimes not.


    • Again, very fair Dave, re: could be a small stretch for some early 20-somethings to have no life changes, make $75K+ per year and realize FIRE/Financial Independence in their 40s but these people are “out there”. They are however, rare since it’s not a common path.

      Yes, in my late 40s (Mark) and I can attest to the same experiences, there is usually a surprise every few days.

      In future posts/case studies, we’ll be sure to highlight some details about CPP or lack thereof in any early retirement or retirement plan. We recognize the CPP calculations are messy but they are also posted for just illustrative purposes as well. OAS always seems to be easier to estimate based on residency rules!

      Stay well and thanks for your readership.


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