25X Your Yearly Expenses to Retire??

[mpruet]

Noodles makes some valid points, but most people will have difficulty significantly reducing their expenses upon retirement.  While a lot of things can be less expensive, a lot of things can increase in cost - the biggest being medical expenses.  Also most folks will increase their traveling with retirement so they can see the grandkids…. ;-)

And there is the truth that if they wanted to reduce their expenses upon retirement, then they could have reduced their expenses prior to retirement which would generally result in an increased nest egg.  I know that in my case my house was totally paid for 10 years prior to retirement and my debt was totally eliminated.  Because of those two things I was able to cut my ‘income’ in retirement in half - but that’s not all that common.  Most folks enter retirement with a mortgage and are making payments on a vehicle.  That’s why the original poster indicated 25 times expenses and not 25 times income.  

Every person will have different requirements, but the 25X guideline is a pretty good goal for most folks.  Sure - you can adjust based on your life style, but the key thing is to be honest with yourself on what your requirements will really be.

 

[Tony's Dream]

I have not heard of this rule, but it could be practical....but does it also assume that the nest egg you put away is to cover all these expenses?

I would determine what your monthly retiremnet income will be minus your current living expenses. If income exceeds your expenses, then anything you put away will be for a rainy day. If your income does not cover your expenses.....then I would take the difference times 25 years.

We are fortunate enough to have 7 streams of retirement income and tricare insurance (retired miliary)....so my retirement income will cover all of my current expenses...without tapping into our 401K or thrift savings......so this will be our fall back income just in case.

 

[Random Painted Highway]

I think this 25X formula also assumes you want to continue a life identical to the one you're already living. But I didn't want to keep paying a mortgage, property taxes, insurance, utilities, etc., and I didn't want to spend tens of thousands a year for vacations to escape a place where I didn't really want to live. Now I live happier and healthier on a quarter of what I used to need just to keep my head above water.

That is a very good point, i do think the assumption of 25X
is maintaining your current standard of living...whatever that may be.  Thanks for the perspective!

 

[Random Painted Highway]

*Also most folks will increase their traveling with retirement so they can see the grandkids…. ;-)

LOL, none for us! We just want to increase traveling to view more birds, natural areas and eat tacos!

 

[Random Painted Highway]

We are fortunate enough to have 7 streams of retirement income

Dang!  That is fantastic! Congratulations!

 

[bullfrog]

^^^ You are gonna need more money, just bought 3 street tacos and a taco salad with 20% tip $21! That is $7,665 per year just for lunch! Do a breakfast, lunch and dinner $22,995 per year. I don't think $2005 a year will cover your other expenses! LOL!!!

 

[mpruet]

More proof of inflation…