Well as expected, this all depends on how much you plan on spending. As a frugal retiree you may need as little as $15,000. As a lavish spender, you may need over $100,000. Either way, there is a fairly simple way of calculating what you need saved up. Essentially, it is annual spending X 25 (this is very conservative. Some even use 22). So if you spend $40,000 annually you would need $1,000,000 saved in some type of investment vehicle, such as a low-cost index fund generating dividends. Based on the Trinity Study, which tracked the gains/losses of the stock market since its inception, you can take 4% of your nest egg every year and never run out. Most FI'ers think that 3.5% or even 3% is better, due to the risk of low gains and losses. The stock market has its ups and downs, recessions and booms, but it always comes back. The 4% is calculated by subtracting an expected inflation rate of 3% from the 7% average gains.
I think $40,000 is a ton. You could live a pretty sweet life even with 2 kids with that amount. Subtract mortage and daycare from our expenses and me and family are living below that very comfortably. We buy good food for grilling and fancy beer to drink... while grilling. We buy gifts for our friends and family. So what do people want $1,000,000 for? Traveling without travel hacking? Nicer cars, bigger houses? Well, if that is your thing, than you probably won't retire early and some of you probably won't retire at all. It is all about fulfillment. Reduce and minimize the things that don't bring you joy or fulfilment and embrace the things that do. If a car is your thing, that is fine, but you need to sacrifice something else for it.
If you don't know how much you are spending or where your money is going that is the first thing you need to fix. Download mint ASAP and add all of your savings accounts, loans/debts, investments, and assets to it. Categorize your expensese into buckets and look at where your money is going. Take a look at the pie charts and line graphs and visually see your financial picture. How does it look? It might be scary at first, but that is the first step. It is kind of like stepping on a scale for the first time in a while. It can be terrifying, but whether you like it or not that is how much you weigh. That is how much money you have. Now what? Analyze your categories and expenses and make a plan to reduce the ones that aren't making you happier. Ditch things like cable, fancy clothes, and going out to eat by yourself. Cut your own hair if you can. I have been doing it for 12 years.
So now that you have a plan to reduce your expenses, you need to increase your savings. How do you do that? Well, the easiest way is to pay yourself first. If you never see the money, you can't spend it. If your employer offers a 401k, use it, but make sure you invest in a Vanguard fund or some other low fee fund. Low fees are key to keeping your money and letting compound interest do its thing. You should never have an expense ratio over .2%. Some mutual funds are over 3%... These people should be in jail. I would suggest using a Vanguard Target Date Fund to start. Essentially, this is a way to automatically rebalance your ratio of stocks/bonds the closer you get to your retirement age. The expense ratio is around .15%. Or you could go with straight Total Stock Index funds which are riskier, but have an expense ratio of around 0.05%. Next, increase your contributions as high as you can. Do 25% or until you are saving $18,000. You will miss the money at first, but you will get used to it. For me, I don't miss the money because I see the money in Mint. It is mine. I see the line moving up and to the right. Time is so important. You have to start saving today and not tomorrow. Time is your best friend when it comes to money. Money invested early enough will pay you more than you could have earned in your lifetime. You could have millions of dollars just by saving $5,000 bucks for 10 years starting in your twenties.
You can open up an IRA with Vanguard, a low-cost index fund, or a Health Savings Account from work. Contributions to a Traditional IRA and HSA are tax deductions, which are essentially bonus savings. So not only are you saving money you made, you are saving money the government would have taken from you in taxes. If you maxed out your 401k and your IRA, you saved $23,000 dollars. Do that in your twenties and you could retire in our 40s with over $1.2 million assuming a decent return. If you save $23k with an interest rate of 5% for just 10 years compound interest (and Rule of 72) would double your money every 14.4 years. Leave it alone for 30 more years and you could have over 3 million dollars.
With 10 years of savings, you would be a millionaire. WTF. Pretty amazing stuff. But unfortunately, most people can't or don't do this. They are busy buying things and paying off debt, but it is never too late. Saving in your 30s and 40s still allows you to accumulate a ton of money. Keep your savings rate up and expenses low and eventually you will get there.
I would also recommend keeping a nice chunk of change in a money market account or something more liquid. Some money just used for emergencies. Start with $1k immediately, but try to get that to around $15,000. Don't invest it. Just let it sit there for when you really need it. This is your Emergency Fund and is guaranteed to help you sleep at night.