The $1,000-a-Month Retirement Savings Rule of Thumb

The $1,000-a-Month Retirement Savings Rule of Thumb

The $1,000-a-Month Retirement Savings Rule of Thumb
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Before implementing a retirement savings plan, it’s important to know how much money you’ll need for your day-to-day life during retirement. If you’re a retiree or would-be retiree, figuring this out will go a long way in keeping you on track with your savings plan, every step of the way.

The $1,000-a-month retirement savings rule of thumb is a constant guide, but you will adjust the exact amount of your savings based on your specific needs. For instance, if you plan to spend $5,000 a month during retirement, you’ll need to save $1.2 million. The more you will spend during retirement, the more you will need to save. 

If you want to be financially secure after retiring, this write-up is designed specifically for you. In it, we’ll discuss how the $1000-a-month retirement savings rule of thumb works, its shortcomings, and how it compares to other retirement guides. Read on for the ultimate retirement guide. 

What Is the $1,000-a-Month Retirement Savings Rule of Thumb?

One retirement savings guideline that is easy to remember and follow is the $1000-a-month rule of thumb. This rule borrows heavily from William Bengen’s famous 4% withdrawal rule. It instructs that for every $1,000 in monthly income you want to spend during retirement, you will need to save $240,000. 

The math is pretty straightforward. Working with 5% as the safe annual withdrawal rate, 5% of the $240,000 sitting in your retirement account is a cool $12,000 yearly. Divide $12,000 by the 12 months of the year, and you have $1,000 monthly to fund your retirement. 

As is common in personal finance, the amount saved varies between individuals. The amount depends on your income, lifestyle, location, other sources of retirement savings, and other variables. If you’re planning to retire in New York, for instance, you’ll need a bigger nest egg than someone planning to live in a rural farmhouse in Blaine County, Nebraska.   

Are you wondering if this rule of thumb will work for you? Well, if you’re considering the Big Apple, your projected monthly expenditure is $5,000, and the $1000-a-month rule of thumb has you covered. What you’ll need to adjust is the amount of savings, which will now be five times the $240,000 needed for $1000 a month in retirement spending.

Where Did the $1,000-a-Month Rule Come From? 

The $1000-a-month rule was developed by Wes Moss, a chief investment strategist at Capital Investment Advisors (CIA), author, and radio talk show host. The strategy, popularized in his bestseller You Can Retire Sooner Than You Think,proposes five practices that you can adopt to retire sooner than you expected and be a happy retiree.

Among the practices the strategy proposes is clearly establishing what you will spend your retirement money on. To do this, you should write down all your day-to-day retirement expenses. Then, find out what everything on that list will cost. Next, create a solid plan to pay off your mortgage and other long-term debts within five years.

The $1,000-a-month rule assumes that your mortgage and other long-term debts will be paid off by the time you retire. Wes Moss, a firm believer in income investing, recommends that you become an income investor and develop multiple streams of income that will replenish your nest egg every time you take out the 5%. 

Where Did the 5% Recommendation Come From?

Moss recommends a withdrawal rate of 5% to accompany the $1,000-a-month rule. Five percent is slightly higher than the 4% safe withdrawal rate that William Bengen recommended. Bengen observed that retirees could withdraw 4% a year from their balanced retirement portfolios and not exhaust their nest eggs for at least 30 years. 

Today, the stock market has become more volatile and may not yield enough to support withdrawing 5% annually. Even so, Moss’s rate is more bullish than Bengen’s. According to the man himself, two key points support the 5% withdrawal rate: income investing and zero-interest accounts. 

Moss strongly believes in income investing as a way of generating consistent income from your portfolio. Income can stream in from dividends, interest, distributions, and other revenue sources. You’ll be off to a smooth start if your portfolio can generate at least 4% annually, as you will avoid excessively eating into your initial investment. 

According to Moss, with income investing, your portfolio can last you at least 30 years. The 5% rate with zero interest is basically what you would call a worst-case scenario; your savings sits in an account yielding zero or negligible interest throughout your retirement. The 5% rate with zero interest will still last you at least 20 years. 

At zero interest, nothing replaces what you take out. Sooner or later, you will exhaust the account and outlive your savings. Outliving your savings is probably the most unfortunate thing that could happen to you in retirement.

Shortcomings of the $1,000-a-Month Rule

Like many other financial guidelines, the $1000-a-month rule has its flaws. 

The first downside to Moss’ approach of going with the 5% withdrawal rate with zero interest is that retirees could easily live more than 20 years. Therefore, they will be forced to live the remainder of their lives without income. If you retire at 66, at 86 you’ll have nothing left.

Another pitfall is inflation. Unless you factor inflation into your $1,000-a-month calculation, it will certainly diminish the value of your savings over time. The Federal Reserve anticipates annual inflation of between 2% and 3%; at 3%, you’ll need over $2,500 to buy in 30 years what $1,000 can buy now. 

Why Is This Rule Important?

Everyone focuses on how much money they need to save before retiring, neglecting an equally important part of the equation: how much they need to save to finance their new life during retirement. By determining your projected expenditures during retirement, the $1,000-a-month rule prevents you from saving too little.  

The rule is simple to understand and implement. All you need to do is estimate the amount you’ll spend during retirement and work your way back to establish how much money you need to save each month. The rule helps ensure that you have a predictable and steady source of income during retirement.

The 5% safe withdrawal limit protects you from running out of money during retirement. The average stock market return over the past 100 years has been between 6% and 10% annually. An income investor earning between 6% and 10% in dividends each year while living off only 5% of their earnings—adjusted for inflation—will virtually never run out of money.

Provided the money market doesn’t throw unpleasant surprises at you, you’ll be safe basing your projections on the $1,000-a-month rule. 

How Long Will Your Nest Egg Last If You Adhere to the $1,000-a-Month Rule?  

As mentioned previously, two factors dictate how long your nest egg will last if you adhere to the $1,000-a-month rule: income investing and keeping your retirement funds in a zero-interest account. With income investing, your portfolio generates cash flow that replenishes your nest egg annually. 

As illustrated above, if your portfolio rakes in between 6% and 10% each year, you will be able to withdraw 5% without touching the principal investment while your portfolio continues to grow. Basically, you’ll never exhaust your kitty as long as you adhere to the safe withdrawal rate of 5% for at least 30 years. 

On the other hand, if you opt to keep your funds in a zero-interest account, they won’t last long. Taking 5% from $240,000 yearly without making any significant investment into the account will reduce its balance by $12,000 each year. It will last you for only 20 years. 

In light of this, income investing is essential to the $1,000-a-month rule if you wish to avoid the unfortunate scenario of outliving your retirement income. By topping up your account every year, your portfolio may last you a lifetime, or at least 30 years, which is better than the minimum of 20 years. 

If you are thinking of leaving some money to your dependents or to charity, income investing is certainly the way to go. 

Conclusion & Recommendation

The $1,000-a-month rule is a great financial planning tool. It can help you determine how much money you need to save during your working years to replace the income you will lose when you retire. You want to avoid exhausting your savings during your senior years, when you can no longer work to support yourself. 

The $1000-a-month rule establishes a 5% safe annual withdrawal rate that protects you from withdrawing too much and depleting your account early. Through income investing, your portfolio can grow consistently and last a lifetime. Fortunately, the rule has been simplified so that everyone can understand and remember it. 

As recommended by the experts at, the $1,000-a-month retirement savings rule of thumb is an easy strategy to use when planning for retirement and managing your spending during retirement. If you don’t want to run out of money during retirement, start saving today.


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