One of the most pressing questions many people ask is this: How much do I need to retire? This questions haunts many people. Trying to decide how much you need to retire isn’t particularly easy, since it depends on how long you will live — and no one knows the answer to that question.
The common rule of thumb is that you can withdraw 4% from your account each year if you expect the money to last indefinitely. This amount is used because it assumes that your investment portfolio will beat inflation and keep growing, and it is considered a conservative estimate. If your investment portfolio manages to return 7% annually, you are “safe” if the inflation rate is 3% annually and you are withdrawing 4%. It’s supposed to even out. (Of course, if your portfolio doesn’t return that each year, then you end up dipping into your capital.)
However, deciding how much you need annually — whether you use the 4% rule of thumb or not — depends on your individual needs. Here are two ways to look at it:
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