What is the 25x Rule?

If you have trouble figuring out how much you need to save for retirement, you’re not alone. Estimates vary widely, and it can be difficult to know how to save, even with a retirement calculator. Well, if you’re struggling, you might want to consider the 25x rule.

The Basics of the 25x Rule

As the name suggests, the 25x rule says you should save 25 times your annual expenses to retire comfortably. The 25x rule is connected to something called “the 4 percent rule,” which is a rule of thumb for withdrawals during retirement. Once you’re retired, you should be able to withdraw four percent of your portfolio per year to live on. The 25 times savings should be enough to cover that four percent withdrawal and cover expenses. 

Just an Estimate

As with any retirement savings tool, the 25x rule is an estimate, not a strategy. You may need less than that, or you might need more. The amount you need for retirement depends on your goals, your lifestyle, your health, and more.

Benefits of the 25x Rule

The benefit of the 25x rule is that it gives you an estimated number to aim for. You’ll get a rough idea of your savings rate and whether you’re on track.

Downside of the 25x Rule

The downside of the 25x rule is that, like many other retirement tools, it is just an estimate. You should not assume the 25x rule will take care of everything in retirement. For the best idea of your individual retirement savings needs, consult a financial advisor.

Do One Thing: Save as much as you can for retirement, going beyond what any estimate gives you.