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Retirement funds aren't very common in Pakistan but I got interested in them reading question and answers on this forum.

I want to know ideally how much should a person save for retirement funds? I am getting a feeling retirement funds is equal to financial independence because one can live without needing to borrow money from anyone.

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  • It depends on your definition of "financial independence" and on how you want to live in retirement. Some people have big plans for retirement, world travel, vacation homes, etc, so they might need quite a bit more than what is considered enough to be financially independent.
    – Hart CO
    Aug 19, 2017 at 16:01
  • As a rule of thumb if you can live on 4% of your initial retirement fund total, you have an 85% chance of not running out by the end of 30 years.
    – user662852
    Aug 19, 2017 at 18:47
  • @user662852 - that's only true in a limited sense (basically, if you are invested 60% in stocks and 40% in bonds, and if you are in the US, etc.)
    – Joe Strazzere
    Aug 19, 2017 at 22:31

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It depends what you mean.

Finance Independence and Retirement Early (FI/RE) are two overlapping ideas. If you plan to retire early and spend the same amount of money every year (adjusted for inflation), then you need to save twenty-times your yearly spending to satisfy the 4% Safe Withdrawal rule of thumb. Carefully notice I say "yearly spending" and not income.

I'm unaware how it is in Pakistan, but in America, people who retire in their sixties tend to reduce their spending by 30%. This is for a host of reasons like not eating out as much, not driving to work, paid off mortgages, and their children being adults now. In this type of profile, a person needs to save 17.5x yearly spending.

This numbers presume a person will only use their built assets as an income source. Any programs like a government pension acting as a safety net. If you factor those in, the estimates above become smaller.

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I want to know ideally how much should a person save for retirement funds?

A person should save enough such that your total retirement resources will equal the amount you personally need for a comfortable retirement at the point in time when the person desires to retire.

If you want to retire at 40, you may need to save quite a lot each year. If you want to retire at 70, you may need to save less each year.

If you will have a pension, you may wish to save somewhat less than someone who won't have a pension. The same is true for Social Security (or your local equivalent).

I am getting a feeling retirement funds is equal to financial independence because one can live without needing to borrow money from anyone.

Sort of, but it depends on your goals. Some who are financially independent never choose to retire, but choose jobs without regard to financial need.

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