What Is the $1K Per Month in Retirement Rule?

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Figuring out how you'll sustain your lifestyle in retirement can feel like a shot in the dark. However, there are ways to determine how much you should aim to save based on your preretirement spending.

One rule of thumb, known as the $1,000 per month rule, could steer you in the right direction for a comfortable retirement.

According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside. For example, if you aim to take out $2,000 per month, you’ll need to set aside $480,000. For $3,000 per month, you would need to save $720,000, and so on.

The idea is that you'll have enough passive income streams to support you in your retirement years. Many retirees receive income from rental properties, dividends, pensions, annuities, Social Security and other sources.

Why $1K Per Month?

“The $1,000 a month rule for retirement is a quick way to estimate your retirement savings,” Bill Gallagher, senior planner at Zynergy Retirement Planning in Red Bank, New Jersey, said in an email.

Determine your monthly expenses to calculate how much you'll need in retirement. List all of your regular expenses, including housing, groceries, transportation, health care, insurance and entertainment. If you aren't sure of this figure, estimate it based on your current expenses and add a little more to be conservative.

Multiply your monthly expenses by 12 to estimate your annual expenses. For example, if your monthly expenses are $3,000, your annual expenses would be $36,000.

To determine how much savings you need to cover this annual expense at a 5% withdrawal rate, divide the annual expense by .05. In this case, $36,000 divided by 0.05 equals $720,000. This means you would need $720,000 in savings to comfortably withdraw $3,000 monthly in retirement.

For every $1,000 increase in monthly expenses, multiply by 12 to get the annual expense and then calculate based on the withdrawal rate. This method allows you to adjust your savings goals easily by using increments of $1,000.

Benefits of the $1K Per Month Rule

The $1,000 per month rule can eliminate the guesswork for savers. “These rules are extremely valuable for younger clients who want to understand how much money they might need to save to achieve financial independence,” Kendall Meade, a financial planner at SoFi in Charleston, South Carolina, said in an email.

Breaking down your retirement nest egg into $1,000 increments can help you reach simple, achievable savings goals. The formula is straightforward and clear: for every additional $1,000 per month you wish to withdraw, simply increase your savings target by $240,000.

Alternatives to the $1K Per Month Rule

There are other retirement income strategies for workers to adhere to, including the 4% rule. Some experts believe withdrawing 4% of your investments every year in retirement can effectively support your lifestyle for about 30 years.

"The 4% rule specifically refers to a 30-year retirement, but people live well beyond that," Marc Russell, a financial consultant at Better Wallet in Atlanta, said in an email.

By contrast, the $1,000 per month rule doesn't specify a timeline but focuses instead on immediate savings targets. That may leave some retirement savers short.

"Because of market conditions and inflation, you must constantly adjust. The way to beat that is by over-contributing, so your contribution rate and the amount you need to have invested should be on the higher end to ensure you have enough in retirement," Russell added.

Retirees should note that the 4% withdrawal rate is considered more conservative and potentially offers more protection against outliving your savings. It accounts for various factors including market returns, inflation and investment performance, and may be a better fit for savers who prefer the security of a more detailed investment plan.

The simplicity of the $1,000 per month rule allows savers who want to set retirement goals to easily gauge their progress.

Is the $1K Per Month Rule Right for You?

Before you embrace the $1,000 per month rule in retirement, consider your age, income and retirement goals. It may help you create a road map for the coming years, but it's one of many approaches.

Start by assessing where you're at currently in your savings journey. To better understand how long your retirement savings will last, try using a retirement savings calculator.

Then, take steps to save and generate the income you'll need to maintain your lifestyle in retirement. Whether you use the $1,000 per month rule, the 4% rule or another, set clear savings goals for your retirement plan and stick to them.

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