This updated rule of retirement saving has you working longer, running out of money sooner
With the global economy having gone through tremendous upheaval in the past decade, some of the principles used to calculate what we need to save for retirement need to be adjusted to better account for today’s investment environment. A common rule was to assume $20 of savings would generate $1 of investment income in retirement. However, with today’s lower investment returns, the rule needs updating. Using this formula now requires that we start at 65, not 60, and savings are projected to last about 25 years assuming an inflation rate of 2.5 percent. You may also want to tweak it to $21 or $22 in savings, in order to be more conservative with your financial planning.
“The Rule of $20 was just updated, and it’s still a useful gauge of how much income you can generate from your retirement savings. But it’s a more demanding rule than it used to be, largely thanks to today’s thinner investment returns.”