(NewsNation) — For those looking for some tangible guidance on how to set aside enough money for retirement, experts offer the “$1K per month” rule.
What is the ‘$1K per month in retirement’ rule?
Under this rule, for every $240,000 saved, $1,000 can be withdrawn each month if one sticks to a 5% annual withdrawal rate, according to the Institute of Financial Wellness.
“The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement,” the organization said.
To apply the $1K per month rule, the group recommends starting off by determining monthly expenses such as housing, groceries, transportation, healthcare and insurance.
Next, they say to calculate annual expenses by multiplying monthly expenses by 12.
In order to come up with the estimated required savings, divide annual expenses by 0.05, which represents the 5% withdrawal rate under the $1K per month rule.
This answer will show how much total retirement savings will be needed to make the required monthly withdrawals.
While the rule is meant to offer a straightforward answer, it’s important to consider factors like inflation and unexpected expenses that could change things, the group said.
Other ways to save for retirement
Many employers provide retirement plans to full-time employees, and one of those is a 401(k) plan. 401(k) plans typically come in two types: traditional and Roth. The former taxes your money when you withdraw, while the latter taxes your money before it goes into the account.
However, many Americans don’t have access to a 401(k). With options like Roth IRAs, solo 401(k)s and SEP-IRAs, those without access can still work toward their retirement goals. Additionally, if your employer doesn’t provide a 401(k), you might still have access to a pension, profit-sharing or employee stock purchase plan.
NewsNation digital producers Ashley Soriano and Taylor Delandro contributed to this report.