The 4% rule for our retirement number.

Many people avoid finding their retirement number because it seems too complex. But, it can actually be easy to get a rough idea of the amount we want to have saved before retiring. The 4% rule works for most people, most of the time. If we use this simple math as a base, we can then adapt it to our own circumstances, such as using a 3% rule if we want a higher level of security.

Start here: Based on your current annual budget and lifestyle, what amount could you happily live on for income post-retirement, in today’s dollars? Remember your post-retirement spending will likely be less than what you spend in your working years. You should have debts, including your mortgage, paid off by then. Children should be independent. You’ll no longer be saving for retirement, and you may have figured out how to have a fulfilling life with fewer expenses. Plus, at a certain age government benefits will kick in; find out how much you can expect and subtract that from your future annual income.  

Got a rough idea? To figure out what you should have invested, multiply your future income by 25. Let’s use $50,000/year as an example. Multiply that by 25 and the amount to save is $1,250,000.

Here’s how the 4% math works: If your average investment return is 6%, and you minus 2% for inflation, that leaves 4% to withdraw annually, without touching your principle. Of course, these numbers are only rough estimates, but it will give you a goal to work towards. We multiplied by 25 because that’s the mathematical number that matches 4%. If you want to base your plans on a more secure 3% rule, then multiply by 33.3.

Take action: If your number feels daunting, remember you can brainstorm to figure out how to get on track. Don’t forget the magic of compound interest, if you start saving now. Or, you could live in a less expensive city. You can’t count on surprises, but it’s possible an inheritance may be in your future. If you’re in good health, semi-retirement is a great option that can be enjoyable and contributory. Or, you can build a side business that gives you a somewhat passive income. There are so many ways to be golden in your golden years.

:: Inspired by’s article, How much is enough?

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