How Much Money Do I Need to Retire?
When developing a retirement savings strategy, budget for items outside normal living expenses that will stay with you during retirement. For example, perhaps you will no longer pay for your child’s Irish step dancing lessons as a retiree, but you will continue your membership at your local country club. If that is the case, include that along with other expenses like traveling, or eating out.
- Multiply By 25 Rule: The multiply by 25 rule estimates how much money you will need in your retirement nest egg and assumes you will live 25 years in retirement. To use this rule, first determine the amount of money you want to withdraw from your retirement savings annually. If you have annual living expenses of $40,000 and $10,000 in lifestyle choice expenses, you would need $50,000 per year. Then multiply $50,000 by 25, resulting in $1.25 million of required savings at retirement.
- 4% Rule: Alternatively, the 4% rule estimates how much money you can safely withdraw from your nest egg per year, once you reach your retirement age. Let’s say you saved $1.25 million for retirement. You should be safe to withdraw 4% of that amount, $50,000. ($1,250,000 X .04 = $50,000)
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