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By Alliant Credit Union
There’s a lot of advice out there about planning for retirement. But planning for an early retirement—well before Social Security kicks in, and long before the typical retirement age of 65 – leaves many people with more questions than answers.
That’s where blogger “Mr. Money Mustache” comes in: He managed to retire in his thirties and has been sharing lifestyle tips on his blog ever since. While not everyone wants to live a super-frugal life, he has some great ideas anyone aspiring to early retirement can appreciate.
The blogger is a big fan of “the 4% rule.” This rule of thumb says 4% annually is the maximum rate at which you can spend your retirement savings so that you do not run out of money in your lifetime.
Not only does this give you a suggested rate of spending, you can also use it to estimate how much to save – simply take what you spend now, and multiply it by 25. For example, if you spend $25,000 a year, you’ll need $625,000 to retire, assuming a 4% withdrawal rate. If you spend double that each year, you’ll need $1.25 million to retire, assuming that same 4% withdrawal rate.
Perhaps the biggest takeaway is that retiring early is as much about cutting your spending rate as it is increasing your savings. The less you spend, the lower your withdrawal rate, and the longer your retirement savings will last.
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