Over the years we’ve all heard that you’ll need at least $1 million dollars when you retire. If you listen to Suze Orman, she’ll tell you that you’ll need $5 million if you plan on retiring early. Depending on the lifestyle you want to live most of us will get by just fine with less. Remember your DIAL. If you have your debt, income, assets and lifestyle tuned in, you should be able to live comfortably in retirement.

Be debt free
Ideally when you retire, you want to be debt free. Now, I know that won’t be possible for everyone but having zero to little debt allows you to retire with more financial flexibility. If you have the assets and income to overcome that debt, then having some debt is manageable. When you no longer have a mortgage, auto, credit card payments or owe money on your “toys”, you’ll have more choices for your lifestyle. Think about it this way, with no debt, the only expenses will be the standard living expenses such as groceries, cell phone, internet, utilities, etc. Perhaps you’ll have some taxes, pet costs and some maintenance issues that pop up but nothing too overwhelming. Paying on a debt in retirement can quickly diminish your savings and eat away at your assets.

4% withdrawal rule
For many years the rule of thumb for taking distributions from your investment accounts has been to setup a 4% withdrawal. At a 4% withdrawal you should be able to maintain your account balances and have steady income. This rule does not take into account any other income you have coming in such as Social Security, pensions or rental properties. Unless you have a million dollars, your investments won’t be enough, but you should always have multiple sources of income.

This is just a rule of thumb to go by so be willing to adjust it. If your accounts have done well because the stock market is booming, it might be time to take a little more than 4%. On the flip side, if your accounts are down and the markets are struggling, be flexible enough to take a little less.

Could you get by on a 5% withdrawal? Depending on how your money is invested and other income, such as Social Security, you should be able to. Most insurance companies will use a 5% guaranteed lifetime withdrawal starting at age 65.

X25 rule
You may or may not have heard of this one. This rule states to take the amount of income you’ll need in retirement and multiply it by 25 to indicate how much money you’ll need saved. For example, if you need $30,000 a year in retirement, the rule states that you’ll need $750,000 (25 x 30,000) saved for retirement. Again, this rule has some flaws in it because it doesn’t take into account any other income you have coming in such as social security, pensions, rental income, part-time jobs, etc. It also doesn’t take into account any lifestyle changes.

75% Rule
Another long-time rule of thumb is when you retire, you’ll need around 75% of the income from when you were working. This works for some people but a lot of folks who chose to live a different lifestyle will be able to get by on much less. In my book, “Retire Early What are you waiting for?” I explore different lifestyles people are living once retirement comes. Some couples are RVing full-time, relocating to a less expensive country or downsizing and living comfortably on less than they used to. What folks are finding out is even though their lifestyle is much less, they are not sacrificing need or even things that make them happy. If your lifestyle is such that it doesn’t take you much to live on, then you’ll not need anywhere near 75% of your working income.

Retirement means not working
Let’s say you need $40,000 a year to live in retirement. If after taking 4% of income from your investments, turning on Social Security or receiving income from other sources, you may still have an income gap or the need to build an emergency fund. A part-time job may just be enough. A part-time job may also allow you to wait to take your social security until you’ve reached full-retirement age or allow your investments continue to grow, because keep in mind, as you get older you may not be able to continue that part-time job.


Planning for retirement is like putting a puzzle together. Some of the “rules of thumb” might work for you and then again some might need to be tweaked for your own personal situation.

The media and society has most people convinced they have to keep working to get to that magical $1 million number. Don’t fall into that trap. Your freedom with thank you.

Live free my friends.
Eric Gaddy