Everyone wants to retire comfortably, but it’s not easy to tell how far away from it you realistically are. A monthly check of your “safe withdrawal rate” can tell you, as well as serve as a motivation boost, according to The Simple Dollar.
The Safe Withdrawal Rate is universally calculated as four per cent of your total savings. So add up all your investments, your savings and any fixed incomes. Multiply them by 0.04 and divide them by 12, and you’ll find the amount you can withdraw every month from your nest egg, without having to work to add any more to it. As Simple Dollar says:
When that number starts getting big enough to look like a total you could survive on, it feels really good. It’s also a fun number to chart over time, just like your overall net worth. As it gets bigger and bigger, it not only represents you getting closer and closer to retirement, but it also represents a larger and larger “emergency fund,” meaning you could survive some pretty major changes in your life without skipping a beat.
Once you save to the point that this number looks like something you can live off of and budget around, you’ll know you’re in a good place. This idea is along the lines of the “Financial Independence formula”, but also gives the added boost of knowing how close you are coming to your target.
Questions About Basis Points, Churning, Scentsy, and More! [The Simple Dollar]