Saving for retirement comes in many shapes and sizes, and strategies are not one-size-fits-all. Developing a successful retirement plan requires research, adjustments, and diligent work. However, as the saying goes, the ends justify the means—money saved from income and investments will benefit your retirement years if managed properly.
Relying solely on a set-it-and-forget-it mindset won’t go far. That’s why it’s important to try new approaches to make your money grow and work for you in the future. One example is the $1,000 retirement rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much they should have in their retirement fund for true retirement readiness.
According to Moss, you should plan to have $240,000 saved to secure $1,000 of disposable income each month in retirement. For each additional $1,000 of disposable income you wish to have available, you need to accumulate another $240,000 in retirement savings.
As a general rule of thumb, you will withdraw approximately 5% of your retirement income annually for expenses. The Balance breaks down the numbers below:
Start with $240,000, multiply it by 5% (yielding $12,000), then divide $12,000 by 12 months to total $1,000 per month.
Moss notes that the $1,000 retirement rule is really just a rule of thumb, and factors such as inflation, the stock market, Social Security, pensions, part-time work, and other income streams may cause the total to vary over your lifetime.
Adjusting the $1,000 Retirement Rule
Like most things in life, there are exceptions to the $1,000 retirement rule. For example, some people retire earlier than others, and some older adults retire after the age of 62. Your retirement age will determine how much you should plan to withdraw each month, and will, therefore, impact the rule.
Someone who retires early in their 50s will have to withdraw smaller amounts each month for their retirement savings to last longer, and someone retiring after the age of 62 can afford to increase their spending.
When thinking about how to boost retirement savings, everyone—regardless of age—must monitor financial market conditions and adjust their monthly income strategies to support long-term financial wellness. For instance, years with high inflation can change the value of your dollar, requiring reassessment and adjustments to maintain your financial well-being. Always stay mindful of economic shifts that impact your money.
Setting Yourself Up for Success
Recognizing that your financial planning strategy will continuously evolve over time—and adjusting your retirement strategy as needed—is key to a successful retirement plan. While 5% withdrawals every year may sustain the average participant for about 20 years, many will need retirement funds for a longer period.
Investing, rather than simply storing money in a savings account, can help your dollars stretch longer and activates your money to work for you. Some examples of supplemental savings include:
- Individual Retirement Accounts (IRAs): These accounts can be opened online through financial institutions like Fidelity and can easily be managed at your fingertips. The IRS sets contribution maximums for retirement accounts on an annual basis. If you can maximize these accounts every year, you can significantly improve your retirement savings for the future. Slavic401k can help you engage with an IRA plan as a retirement goal.
- Health Savings Account (HSA): As you age, your health expenses will likely increase. Having an HSA can help you plan and cover those increasing costs with a tax-deductible account. By maximizing these accounts early, you will have health expenses covered in the future that won’t impact other areas of retirement savings, such as 401(k) plans, IRAs, and regular savings accounts.
Having a diverse retirement savings strategy—including tailored retirement income strategies—can help you weather current and future economic downturns by protecting cash and investments earmarked for retirement. Learn about the importance of diversifying your investments in the Slavic401k blog post.
While saving for retirement does not have a one-size-fits-all approach, utilizing different methods, such as the $1,000 retirement rule, can help you reach your goals and is one solid strategy on how to boost retirement savings. Remember that saving, maximizing contributions, investment options, and retirement planning will look different at various stages in your life. Utilizing resources like a retirement calculator can help you keep yourself on track financially.
Check out Slavic401k’s diverse catalog of calculators, including a retirement nest egg calculator and retirement planner calculator. Consider us also for your wealth management advisory needs. Lastly, if you need more information on the topics in this blog post, a member of the Slavic401k team will be delighted to speak with you. Please reach out and let’s have a conversation!
