What Is the $1,000-Per-Month Retirement Rule?
Personal Finance
The traditional 3-legged stool of retirement—Social Security, pensions, and personal savings—is weakening as pensions disappear and Social Security faces potential cuts by 2033. The $1,000-per-month rule estimates retirees need $240,000 in savings per $1,000 of monthly income, assuming a 5% return and 5% withdrawal rate over 20 years.
Traditional Ways to Fund Your Retirement Income
The traditional way of funding retirements was known as the 3-legged stool, since it was composed of 3 components-Social Security, Pensions, and personal savings. However, it now appears that retirements have become far more dependent on personal savings. This is the case because Social Security appears to be running out of money and retirees can now expect, unless the program is refunded, to experience benefits cut by 2033. Additionally, corporate pension programs have now become rare. Most private employers have now shifted to 401-k programs which moves the burden of funding retirement from the employer to the employee.
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What Is the $1,000-Per-Month Retirement Rule?
The $1,000-Per-Month Retirement Rule is a simple way to estimate the level of retirement assets (personal savings) needed to meet the desired monthly income needs. This rule uses a formula that estimates how much money someone will need for retirement assuming a 5% return and a 5% withdrawal rate and a 20-Year retirement.
The $1,000-Per-Month Retirement Rule states that for every $1,000 of required monthly cashflow the potential retiree would need $240,000 of assets. That is, $1000 per month of withdrawals would result in $12,000 in annual requirements which would last 20 Years (assuming the investor has the funds invested in a low risk account). Thus, a retiree with a $ 3,000 per month need would require $ 720,000 in assets according to the $1,000 per month rule.
The $1,000-Per-Month Rule is only part of the retirement puzzle
As shown above, the personal savings component can be established using the $1,000 Month rule.
The $1,000-Per-Month Rule: Pros & Cons
The $ 1000 per Month Retirement Rule is sometimes viewed as overly simplistic, but it can be a important tool in your retirement toolbox.
“By failing to prepare, you are preparing to fail.” – Ben Franklin
“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffet
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