There are lots of great “rules of thumb” you can apply when saving money for retirement. Even though there are many good strategies for this stage of your life, a popular tip you might want to consider is the $1,000-a-month rule. The rule goes like this: for every $1,000 a month you want to have during retirement, you need to save $240,000. Let’s take a look at how this will work out, assuming the withdrawal rate is 5 percent. So, with $240,000 x 0.05 = $12,000. Dividing this number by 12 gives us $1,000 each month. Having this cash is important because it gives you a bit of wiggle room each month. There are many things you can do with an extra thousand each month, such as:
- Supplementing income from a part-time job
- Adding to your Social Security income
- Complementing any other streams of income you have
Depending on how much you are getting from your part-time job or Social Security, the multiples of $240,000 will differ. The rule itself will not vary, but if you want more than $1,000 a month, you’ll need to save more than $240,000.
How to Save Enough Money
This tip will only work if you’re putting enough into your investment accounts. Whether you have a lot or a little saved, now is the time to start seriously putting money aside. If you are behind, consider making some lifestyle changes so you’ll have more for retirement. One of the biggest obstacles when it comes to saving is debt. Many people find that once they’ve made their monthly mortgage, student loan, or car payments, there isn’t much left for savings. However, if you can get your debt paid off, everything that was going into payments can now go toward your retirement. For example, refinancing your student loans is one way to pay education debt off sooner. Many people qualify for lower interest rates, reducing each monthly payment. For all debt, consider paying as much as your income allows you to each month. Once you have everything paid off, it’s time to ensure that your savings will last through retirement.
Making Your Money Last
You’ll want to be able to withdraw the 5 percent from your accounts without running out of money. One way to do this is by investing your income, which will give a consistent cash flow from the investments. This can come from interest, distributions, and dividends. Using an investing strategy to help your portfolio generate returns will ensure that the $1,000-a-month strategy will work. Stable investments such as bonds help your savings make you money. This strategy also leaves room for you to not earn interest for a period. If your retirement savings are invested in cash, they might not yield anything for a while. In this case, you can still withdraw 5 percent, and the funds will last for 20 years. However, if there are any gains in the market, you can use this time to invest wisely. That way, your funds can last longer than 20 years, and you can leave something for your children.
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