Previously, I demonstrated a way to calculate your retirement needs. Now I am going to show you how to use a popular math trick, e.g., the Rule of 72, along with some historical inflation data, to give you a quick way to estimate the annual income needed for a comfortable retirement.
Here are some quick factoids:
Using the Rule of 72 and the Rule of 115 and inflation rate of 3.4%, we can estimate that:
Another thing to consider is calculating based on your current income might not be the best method. A better way to do the estimate is to base it off your current estimated annual living expense — specifically, picture yourself retiring today, how much money do you think you need? The reason the expense method is better than the income method is simple — some people make $50,000 a year and could live on $25,000, and some people make over $100,000 but spend more than that every year.
If you don’t have a good idea on how to estimate your expenses, you can apply the 80% rule. The 80% rule simply estimates that you will need about 80% of your pre-retirement income to live comfortably in your retirement, which will lower your retirement needs by a bit.