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Rule of 25 Formula:
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The Rule of 25 is a simple retirement planning guideline that helps estimate how much money you need to save for retirement. It suggests that your retirement savings should be 25 times your annual expenses to ensure financial security during retirement.
The calculator uses the Rule of 25 formula:
Where:
Explanation: This rule assumes you can safely withdraw 4% of your retirement savings each year without running out of money over a 30-year retirement period.
Details: Proper retirement planning ensures financial security and independence during your retirement years. The Rule of 25 provides a straightforward way to estimate your retirement needs and helps you set realistic savings goals.
Tips: Enter your estimated annual retirement expenses in US dollars. The calculator will multiply this amount by 25 to give you the recommended retirement savings target. Make sure to include all expected expenses such as housing, food, healthcare, and leisure activities.
Q1: Why multiply by 25?
A: Multiplying by 25 is based on the 4% rule - if you withdraw 4% of your savings annually, 25 times your expenses ensures your money lasts through retirement.
Q2: Is the Rule of 25 accurate for everyone?
A: It's a general guideline. Individual circumstances may vary based on investment returns, inflation, life expectancy, and other factors.
Q3: Should I include Social Security or pension income?
A: Yes, subtract any guaranteed income from your annual expenses before using this calculator for a more accurate result.
Q4: What if I want to retire early?
A: For early retirement, you may need a larger multiplier (30-35 times expenses) to account for a longer retirement period.
Q5: Does this account for inflation?
A: The 4% rule historically accounts for inflation, but it's wise to review your plan regularly and adjust for changing economic conditions.