How Much Money Do I Need to Retire - The Rule of 25
Saving for retirement can be daunting. Between the multitudes of savings instruments to the internet chatter telling you to do one thing today and another thing tomorrow, retirement planning can turn into an overwhelming process. You can spend an infinite amount of time trying to decode the key to the perfect amount to have saved for retirement… or you can use the Rule of 25.
The Rule of 25 is simple: take your lifestyle expenses and multiply it by 25. The resulting number is your nest egg which represents the total amount of money that you should have saved for retirement. For example, if your estimated need is $100,000 per year, you would need $2,500,000 in your nest egg (25 x $100,000). This amount should be able to last you 30 years while taking out approximately 4% each year. The Rule of 25 gives you a sense of how much you need to have saved for retirement. While it is not flawless, you will have a good understanding of your retirement goals.
As mentioned, the Rule of 25 is not the end all be all for retirement planning. There are a multitude of factors that affect how much you should be saving that are not included in this equation. For example, social security, pensions, inflation, and taxes are not factored into the Rule of 25. Furthermore, if you are planning on retiring early or financially supporting others you may need to adjust your retirement goals.
Nonetheless, the Rule of 25 simplifies your retirement planning. It is always important to note that saving early and often can greatly impact your financial security in retirement. By using the Rule of 25, you can gauge how close you are to reaching your goals and alter your savings accordingly. Whether you are 35 or 65, the Rule of 25 can work for you!
Isabella Blackman is Client Service Associate with Napper Wealth Planning of Raymond James in Walnut Creek, CA. She manages communications, operations, and service needs for our clientele. She can be reached at 925-952-5254 and Isabella.Blackman@raymondjames.com. Learn more about her at www.jennifernapper.com
