Calculate Your “safe Withdrawal Rate” to See How Far You Are From Retirement
Everyone wants to retire comfortably, but it’s hard to tell how far you really are. According to The Simple Dollar, a monthly check of your “safe withdrawal rate” can tell you and also serve as an incentive to increase your motivation.
The safe withdrawal rate is usually calculated as 4% of your total savings. So add up all your investments, savings, and any fixed income. Multiply them by 0.04 and divide by 12 and you will find the amount you can withdraw from your nest egg monthly without working on adding extra funds to it. As Simple Dollar says:
When that number starts to get big enough to look like an amount you could survive on, that’s really good. It’s also an interesting figure to display over time, just like your total net worth. As it gets bigger and bigger, not only does it mean you’re getting closer and closer to retirement, but it also represents an increasingly larger “emergency fund,” which means you can survive some quite serious changes in my life, without missing a second.
Once you save to the point where that number looks like something you can live on and budget for, you know you are in a good place. This idea is in line with the “formula for financial independence,” but it also gives additional impetus to understanding how close you are to your goal.
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