Derek Foster is a bit vague in his book on how much he had to save over 12 years that enabled him to retire at a young age with a portfolio much less than a million dollars plus a fully paid-off home. In many articles he says that he has saved and invested at least $200 since his early 20′s until his retirement (Canadian Money Saver, November/December 2006).
To figure out how much you should save to retire early like Derek Foster, let’s assume that Derek ended up with a nest egg of $450,000 over a 12-year period (Source: James Daw, Toronto Star, Sep. 26, 2006). Let’s also assume that Derek was able to post annual returns of 20%, which would make him one of the best investors around. How much would he have to save annually to attain the nest egg? Try $9,500 or almost $800 per month.
With much lower returns forecast in the future, I’m sceptical that someone starting today will be able to do a Derek Foster saving $200 per month. If future returns are in the 7%-8% range and you are able to beat the markets with a 10% return, you need to save almost $19,000 per year to end up with a similar portfolio in nominal terms over the same time period. If inflation runs at a modest 2%, you’ll need to bump up your savings to $2,000 per month.