Once you know what amount of income you’ll need your savings to produce, you can estimate the amount that you actually need to have invested.
If you plan to follow the 4% rule and withdraw 4% of your account balance in your first year of retirement, you can do this by multiplying your desired retirement income amount by 25. So, if you estimated you’ll need your savings to produce $25,000 in retirement income, you’d know you need a savings account balance of $625,000.
The 4% rule is an easy way to set a retirement withdrawal strategy that reduces the chances you’ll run short of money in your later years. If you have a different plan for withdrawals, this approach can still give you a rough idea of how large your nest egg should be — although it won’t be as accurate.