To calculate the total retirement savings needed based on the Rule of 25:
\[ RS = A \times 25 \]
Where:
The Rule of 25 is a guideline used in retirement planning to estimate how much a retiree will need to save to sustain their lifestyle after retirement. According to this rule, a retiree will need to save 25 times the amount that they expect to spend annually during retirement. This rule is based on the 4% withdrawal rate, which suggests that a retiree can withdraw 4% of their retirement savings each year without running out of money for at least 30 years.
Example 1:
Assume the following annual expenses:
Using the formula:
\[ RS = 50,000 \times 25 = 1,250,000 \]
The total retirement savings needed is $1,250,000.
Example 2:
Assume the following annual expenses:
Using the formula:
\[ RS = 80,000 \times 25 = 2,000,000 \]
The total retirement savings needed is $2,000,000.
