Here is where I’m going to jam in all of the common calculations for “magic numbers” and calculations that I use throughout my posts. This way, I can just link from the post to here instead of explaining every time.
The 300 Rule
This means that you can multiply a monthly expense by 300 to get the amount of money that you would need to save in order to afford that monthly expense after retirement, assuming a 4% withdrawal rate. If you take X as your retirement funds…say, $650,000. Get 4% of that.
$650,000 * 0.04 = $26,000 / yr
Now divide by 12 to get your monthly income
$26,000 / 12 = $2,167 / mo
Outstanding. Now, we could have gotten there just as easily by dividing $650k by 300, because 0.04 (4%) / 12 = 300.
$650,000 / 300 = $2,167 / mo
Incidentally, this is also how you can determine your monthly income that your fund will generate.
To go from a monthly expense to the funding needed, multiply the monthly expense by 300. Let’s take a Spotify subscription.
$9.99 * 300 = $2,997
So there you are. If you want to have a Spotify subscription in your retirement, you’re going to have to save $2,997.
The 173 Rule
This means that you can multiply monthly expenses by 173 and the result will be the amount of money that it would grow to if you invested that money for 10 years, assuming 7% interest. It’s not an exact science; it’s more to give you a ballpark number without having to bust out Wolfram Alpha. So, let’s compare the two results.
$50 every month * 173 = $8,650
Here is Wolfram Alpha’s calculation: $8552.59
Error percentage: (8650-8552.59)/8650 = 1.12% error
That’s pretty damn good! I think it’s safe to continue to use that number to estimate the future value.