One of the most time-tested guidelines for retirement planning is the 4% Rule. Put simply, the idea is that in the first year of your retirement, you withdraw 4% of the starting balance of your portfolio. In subsequent years, you do the same, adjusting the figure upward to account for inflation. Following that strategy with a well-diversified portfolio gives you a great chance of having your portfolio last at least as long as your retirement does.
With that guideline in mind, 4% of a $2 million nest egg works out to $80,000. That means that a $2 million portfolio should be sufficient to completely replace an $80,000 salary in a fairly sustainable way throughout a typical retirement. That makes it a natural goal for someone with an $80,000 salary to strive toward.
Indeed, with that savings level, once you factor in your Social Security income, you’ll likely be taking home more as a retiree than you were when you were working. If you, like many seniors, are worried about rising healthcare costs derailing your retirement plans, that extra buffer could be the difference-maker in enabling you to enjoy the golden years you’ve worked so hard to reach.
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