"If you have a target retirement age circled on your calendar, you might be planning around the wrong metric. According to finance expert Dave Ramsey, retirement readiness isn't determined by hitting 60, 65, or any other birthday milestone. What matters is whether you have accumulated enough invested assets to generate the income you need for the rest of your life."
"Then subtract guaranteed income sources like Social Security. For example, if you need $60,000 annually and expect $25,000 from Social Security, your portfolio must generate $35,000 per year. Using the 4% rule (a widely accepted guideline suggesting you can withdraw 4% of your portfolio in year one, then adjust for inflation annually), multiply your income gap by 25. In this case: $35,000 × 25 = $875,000 needed."
"In this case: $35,000 × 25 = $875,000 needed. The 4% rule exists because historical market data shows this withdrawal rate has historically sustained portfolios through 30-year retirement periods. With the S&P 500 returning 14.16% over the past year and 86.65% over five years, equity exposure remains crucial for long-term growth, even as 10-year Treasury yields at 4.26% provide meaningful income from bonds."
Retirement readiness depends on accumulated invested assets that can generate required lifetime income, not on reaching a specific age. Calculate a personal retirement number by estimating annual retirement spending and subtracting guaranteed income sources like Social Security to determine the income gap. Apply the 4% rule—multiply the gap by 25—to estimate the required portfolio (for example, a $35,000 gap requires $875,000). The 4% rule reflects historical market performance that has sustained 30-year retirements. If expenses are uncertain, use a 70–90% income-replacement ratio of pre-retirement pay, subtract Social Security, then multiply the remaining gap by 25. Maintain equity exposure for growth while bonds offer yield.
Read at 24/7 Wall St.
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