25x Rule For Retirement

Recently a Forbes article highlighted something known as the 25x rule when it comes to retirement planning. This is a calculation I spend some time on in The Future Poor in outlining the potential financial issues many will be facing in their senior years.

The article introduces the rule and it is actually quite simple. Take your current income and multiply that by 25.

INCOME X 25 = FUTURE ACCOUNT VALUE NEEDED IN RETIREMENT

While these types of short-hand calculations are not the detailed planning that is actually required, they serve as helpful guideposts or reference points to know where you might be. This particular rule is based on reverse engineering another rule known as the 4% rule used to calculate Safe Withdrawal Rate. This is an important number to know since you do not want to run out of money.

In many ways these types of rules create the basis for a lot of retirement planning methodology but I wonder if you may have had a similar thought to me when looking at the 25x calculation.

You do the quick math on $100,000 and say, “ I need $2.5 million?!”

Maybe!

And that is the central idea at that started me reconsidering our approach to retirement and if it is going to work for many people in the future.

You can pre-order The Future Poor here.

Check out the Forbes article and run a couple calculations to see how retirement looks given the 25X rule.

https://apple.news/A7lusS__xSTuW3GMC5bt4wA

As always, if you come across a financially related article you’d like to send my way please do! 

Best place to send them is to me.

More next time!

Jonathan