Saving for Retirement
The 4% Rule
Deciding how much you need to save for retirement can be tricky. Sure, you can estimate how much you will spend each month by using what you currently spend as a guide, but there are other variables to consider: Inflation, how much you will receive from Social Security, your health, etc.
One way to decide how much you need to save is using the 4% rule. Assume you can draw approximately 4% of your funds each year to live on. That should ensure you would not run out of money during your retirement. So, if you decide you need to draw $30,000 a year from your investments (assuming Social Security and a pension covers the rest of your needs), you will need $750,000 in savings. ($30,000 divided by .04 = $750,000.)
Keep in mind the 4% rule is just a rule of thumb, but it is a handy way to estimate your retirement savings needs. See a financial professional for specific advice regarding your individual circumstances.