March 14th 2024.
Retirement is a major milestone in life, and it's important to plan ahead for it. If you haven't started thinking about your retirement yet, today is a great opportunity to begin. To help you on your journey towards a comfortable retired life, there are two numbers you should keep in mind: 80 and 219.
Let's start with the 80% rule. This rule is often used by financial planners and advisers to guide their clients in retirement planning. Here's how it works: let's say your current annual salary is $75,000. According to the 80% rule, in order to maintain a comfortable lifestyle in retirement, you would need $60,000 per year, or $5,000 per month. Of course, the question on your mind might be whether $60,000 is enough to live comfortably.
There are three possible answers to this question: one, you believe that 80% is a reasonable estimate and you should be able to live comfortably on that amount. Two, you feel that 80% is too low and you may need more than that to maintain your desired lifestyle. Or three, you think that 80% is too high and you should be able to live comfortably on less. There is no right or wrong answer here; the key is to determine what kind of lifestyle you want to have in retirement. Keep in mind that your income may increase throughout your life and career, so your retirement target may change over time.
The other number to remember is 219. This rule, known as the Rule of 219, may not be as well-known as the 80% rule, but it can help answer an important question: how much will it cost to feed yourself during retirement? The rule assumes the following: you and your spouse or partner retire at age 65, you both eat three meals a day at a cost of five dollars per meal, and you do this for 20 years (which equals 7,300 days). So, if we do some quick math, 2 x 3 x 5 x 20 x 365 = $219,000. Of course, not every meal will cost exactly five dollars, you may not have a spouse in retirement, and you may live longer than 20 years. This rule makes some assumptions, but it's easy to understand. The alternative would be to calculate your retirement number using the time value of money, which requires more inputs and can be more complex. The goal of the Rule of 219 is to keep things simple. And if you've never had a specific retirement goal in mind, at least aim for $219,000 so you know you'll have enough to eat.
No one can predict exactly how much they will need in retirement, but whether you use the 80% rule or the Rule of 219, it's a good starting point to assess and adjust your retirement plans. Remember, retirement is inevitable, so it's never too early to start preparing for it.
In related news, it's worth noting that hardship withdrawals from retirement funds have tripled in the last five years. This highlights the importance of having a solid retirement plan in place. Jasper Smith, the founder of The #BuildWealth Movement®, has over 15 years of experience in the financial services industry and holds various licenses and certifications, including the Certified Retirement Counselor designation.
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