Retirement is a phase of life that many look forward to, but it can also bring a lot of questions and uncertainties. One of the most common questions is, "How much money do I need to retire comfortably?"
The answer isn't one-size-fits-all, but there are a few key methods to help you estimate your retirement needs: the Rule of 25, the 80% Rule, detailed budgeting, and of course, our Savvly retirement calculator.
Let's dive into each of these methods so you can figure out which one works best for you!
The Rule of 25 is a straightforward and popular way to get a ballpark figure for your retirement savings. It’s based on the idea that you'll need about 25 times your annual expenses to retire comfortably. Here's how it works:
For example, if you expect to need $40,000 a year in retirement, you would need $1,000,000 saved ($40,000 x 25).
Why 25 times? This rule is based on the 4% withdrawal rate, which suggests you can withdraw 4% of your retirement savings each year without running out of money for at least 30 years. While this rule is simple and easy to use, keep in mind that individual circumstances, such as health or market conditions, can affect its accuracy.
The 80% Rule is another popular method, suggesting that you’ll need about 80% of your pre-retirement income to maintain your current standard of living. The logic is that some expenses, like commuting costs or payroll taxes, will decrease or disappear entirely once you retire.
Here's how to apply it:
If you earn $50,000 a year, according to this rule, you'd need $40,000 annually in retirement.
While the 80% Rule provides a decent estimate, it's essential to personalize it based on your plans. For instance, if you plan to travel extensively or have high healthcare costs, you might need more than 80%. Conversely, if you have a modest lifestyle or expect other income sources, you might need less.
For those who like a more tailored approach, detailed budgeting can be the most accurate method. This involves creating a comprehensive retirement budget that includes all your expected expenses. Here’s a step-by-step guide:
Once you have your total annual expenses, you can use the Rule of 25 or another multiplier that fits your comfort level to estimate your total retirement savings needs.
We've created a free, easy-to-use retirement calculator that can show you what you'll have and what you'll need. Try it now to discover if you're on track!
What's Savvly, anyway? Savvly is the world’s first market-driven pension designed to give you easy and affordable financial security for life – at a fraction of the cost of an annuity. It’s a new solution that can offer long-term income when you need it most.
That way, you can have peace of mind knowing you’ve got an additional income stream coming in when you’re in the decumulation phase of life. The best part? It can offer market returns plus an additional long-life bonus, made possible by partially giving up some investment liquidity.
Each of these methods has its strengths and can be used together for a more comprehensive picture. The Rule of 25 and the 80% Rule are great for quick estimates, while detailed budgeting and the Savvly calculator can provide a deeper dive into your personal finances.
Remember, planning for retirement is a journey, and it's okay if your needs evolve over time. Regularly revisiting and adjusting your retirement plan can help ensure you stay on track to enjoy your golden years with peace of mind.
Assumptions and Risk Disclosure
The information on this page is provided for educational purposes only and is not intended as investment, legal, or tax advice. It is designed solely to illustrate how longevity-based investment benefits may work under certain assumptions. Actual results will vary.
All illustrations, examples, and case studies are hypothetical and are intended to demonstrate potential scenarios—not to predict or guarantee actual outcomes. They do not represent the performance of any individual investor, portfolio, or account.
Key Assumptions Used in the Illustrations
- Life expectancy and mortality projections are based on the most recent Social Security Administration (SSA) tables available at the time of simulation.
- In the event of death or early withdrawal, hypothetical scenarios assume that beneficiaries may receive 75% of the lesser of the initial investment or current market value, plus 1% for each full year the account was active.
- Case studies assume standardized market growth of 8% annually and do not incorporate unexpected market volatility, inflation, changes in interest rates, or changes in an investor’s personal circumstances.
- Simulations may assume a 3% annual early withdrawal rate prior to payout or death.
- All figures shown are net of fees.
Risks to Consider
- Market Risk: Investment values will fluctuate and may be worth more or less than the amount invested. There are no guaranteed returns.
- Sequence of Returns Risk: The order and timing of market gains or losses—particularly near the payout phase—can materially affect results.
- Longevity Risk: Living longer than projected may reduce the pooled benefit per participant; shorter-than-expected lifespans may affect the amount received.
- Redemption Impact: Early or voluntary withdrawals by other participants can impact overall fund performance and distribution outcomes.
No forecast, projection, or hypothetical return should be relied upon as a promise or representation of future performance. Investors should carefully evaluate their own circumstances and consult a qualified financial professional before making any investment decision.