How Much Does Retirement Cost: Using the 25x Rule To Create Your Financial Plan
Posted November 24, 2021
“How much does it cost?”
This is a question you’ve probably asked many times throughout your life and will continue to ask, especially as you plan for retirement.
How much money will you need to retire comfortably? What can you do now to start saving for retirement? If you want to retire early, how will that impact your retirement savings? Essentially, how much does retirement cost?
Unfortunately, we can’t give you an exact number. But to answer these questions as best we can; we look to the 25x rule.
The 25x rule has been around since 1994 when William Bengen coined the 4% rule, a counterpart to the 25x rule, and it provides a rule of thumb for how much one needs to save for retirement.
Based on Bengen’s findings, the 25x rule states that to save enough for retirement, you will need to save 25 times the amount of your annual expenses for maintaining your current lifestyle for a 30-year retirement and not run out of money.
However, it’s important to note that although this is a good rule of thumb, there are fractures where this breaks apart.
For instance, the 25x rule does not account for unexpected life events that may occur. It’s important and necessary to plan for retirement, but it’s just as important to remember that you cannot predict the future.
Additionally, the 25x rule does not account for any of your additional sources of income. You may decide to pick up a part-time job to help fill your days; you could receive a pension or have different sources of income coming into your bank account. If this is the case, you will adjust the amount you need to save based on these numbers.
Finally, the 25x rule does not always translate accurately for those who are looking to retire early. If you are looking to retire in your 40s or 50s, the 25x rule will need to be adjusted so that you can enjoy each year of retirement with financial independence, not just the first 25-30 years.
As you begin to prepare for retirement, there is a lot that you’ll need to consider. Thayer Financial is ready to advise you on your retirement options and help you to create a financial plan from the perspective of comprehensive financial planning so that you can enjoy every moment of your retirement. As financial advisors in Hickory, North Carolina, Thayer Financial is your dedicated resource for fee-only, fiduciary advice. Schedule an appointment or call us today.
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