How Much Money Do You Need?
The most common question in personal finance is "What is my number?" While everyone's lifestyle is different, financial planners often use the 4% Rule as a starting point.
The 4% rule suggests that you can safely withdraw 4% of your total portfolio in the first year of retirement (and adjust for inflation thereafter) without running out of money for at least 30 years.
Target Number = Your Annual Expenses × 25
For example, if you need $60,000 per year to live comfortably, you need a portfolio of $1.5 Million ($60k × 25).
The Cost of Waiting
Time is your biggest asset. Because of compound interest, a person who starts saving at age 25 often ends up with double the money of someone who starts at age 35, even if they contribute the exact same amount per month.
- Start at 25: Invest $500/mo at 7% return → $1.3 Million at age 65.
- Start at 35: Invest $500/mo at 7% return → $600,000 at age 65.
Waiting just 10 years cost that person over $700,000!
401(k) vs. IRA vs. Roth
- 401(k): Offered by employers. Often comes with a "match" (free money). Always max this out to the match limit first.
- Traditional IRA: You get a tax break now, but you pay taxes when you withdraw the money in retirement.
- Roth IRA: You pay taxes now, but your money grows tax-free and you pay zero taxes when you withdraw it in retirement.
Frequently Asked Questions
What is a safe rate of return to use? ▼
The stock market (S&P 500) has historically returned about 10% annually. However, when planning for 30+ years, it is safer to use a conservative number like 6% or 7% to account for inflation and market downturns.
Does Social Security count? ▼
Yes! Social Security is essentially a guaranteed income stream that lowers the total amount you need to save. You can estimate your future benefit at the official SSA.gov website.