The Rule of $1,000: Is This Retirement Rule Right for You?

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last updated 11 August 2025

The rule of $1,000 may help you figure out how much dough you need to save for retirement. You can guess, of course. Or go with a big number like $1 million, or even the $1.6 million that 401(k) plan participants surveyed by Charles Schwab think they’ll need. Or you could hire a financial adviser to run the numbers in a retirement plan.

You can also use back-of-the-envelope guesstimates that give you an idea of how much you must save in your 401(k), IRA, or 403(b) to generate enough monthly income to retire comfortably.

Rules of thumb aren’t be-all and end-all calculations, but they are a step in the right direction, says Jason Grover, financial planning specialist at Grover Financial Services. “Just like running numbers on a retirement calculator, using these rules is a starting point,” Grover said.

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The Rule of $1,000 (aka “The $1,000-a-month-rule)

This rule was popularized by certified financial planner Wes Moss, author of “What the Happiest Retirees Know: 10 Habits for a Healthy, Secure, and Joyful Life.” The "Rule of $1,000" savings guideline states that for every $1,000 of monthly income you want to generate in your golden years, you’ll need to have $240,000 saved in your retirement account. The rule assumes a 5% annual withdrawal rate and a 5% annual return. “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,” according to the Institute of Financial Wellness.

The math works like this: Withdrawing 5% of the $240,000 balance each year generates $12,000 in income annually, or $1,000 a month. ($240,000 X 0.05 = $12,000 per year / 12 = $1,000 a month.) Put another way, if you want to determine your required retirement savings, simply divide your annual expenses by 0.05%. For example, if you think you’ll need $12,000 per year to pay the bills, the calculation is $12,000 / 0.05% = $240,000.

How to use the rule of $1,000

Tally up all the monthly expenses you expect in retirement, such as housing costs, food, transportation, health care, and entertainment. Once you estimate what your monthly expenses will be, you can also get a rough calculation of how big a nest egg you’ll need to pay the bills (we've got a retirement calculator that can help). Remember, it’s not just personal savings that will help you make ends meet. In retirement, you’ll also likely have other sources of income, such as Social Security, a work pension, an annuity or rental income.

Let’s assume you’ll need more cash, say $4,000 a month, to fund your retirement lifestyle. The new numbers to calculate the size of the nest egg you’d need would be: $48,000 / 0.05% = $960,000. Or to figure out how much monthly income you can generate with a $960,000 account balance, the math would be: $960,000 X 0.05 = $48,000 per year, or $4,000 monthly.

The $1,000-a-month rule isn’t a precise financial planning tool. What it is, though, is a concept that’s easy to understand and easy to apply.

“It’s one of those rules of thumb that (the wealth management industry) tries to give people to help simplify their financial planning,” said Tim Steffen, director of advanced planning at Baird Private Wealth Management.

The rule of $1,000 downside

Like most simplistic retirement guesstimates, personal finance pros say there are drawbacks. The rule of $1,000 doesn’t account for all the unknown variables that will impact savings and spending over one’s lifetime.

One of the downsides is the 5% withdrawal rate, which errs on the aggressive side. A popular retirement withdrawal strategy, for instance, is the 4% rule. This simple rule of thumb calls for just 4% of savings to be withdrawn in the first year of retirement and then withdrawing the same amount plus adjustments for inflation in the following years. This strategy is designed to provide withdrawals for 30 years without depleting the saver’s nest egg.

Jason Fannon, senior partner at Cornerstone Financial Services, recommends this more conservative withdrawal strategy and says, in some cases, a 3% annual distribution might be prudent.

“The 5% withdrawal per year would worry me,” said Fannon. “Anything over 4% is fairly aggressive.”

The higher 5% withdrawal amount could prove difficult in low-interest-rate environments, as lower yields net less income, Fannon says. Wall Street is now placing 89% odds on the Federal Reserve cutting its key benchmark interest rate by a quarter-percentage point to 4.0% to 4.25% at its September meeting and see a 46.3% probability of rates being cut by an additional half-percentage point to 3.50% to 3.75% by year-end, according to CME Group data through Aug. 8, 2025. Lower interest rates place a greater reliance on the retiree to generate income from more volatile assets, such as stocks, and a more aggressive portfolio. And that subjects a nest egg to more risk from market fluctuations.

And there’s no guarantee that more aggressive investments will return 5% per year, either. In fact, in July, Vanguard rolled out its latest 10-year annualized return projections, which showed U.S. stocks posting average annual returns of just 3.3% to 5.3%. The key takeaway: Drawing down 5% could put retirees at greater risk of running out of money, says Fannon.

Steffen also cautions that the $1,000-a-month rule doesn’t specify a timeline for how long the lump sum will last but rather on a savings target.

If the $240,000 needed to generate the $1,000 in monthly income doesn’t deliver a return, for example, the money would last just 20 years. “And many people have longer retirement periods than 20 years," said Steffen.

What’s more, the simplistic rule of $1,000 doesn’t take inflation into account. Steffen says that the $1,000 in income you might need today might not be enough to fund your lifestyle years from now. Moreover, if the $240,000 is sitting in a traditional 401(k) or IRA, withdrawals will be taxed at the retiree’s regular income tax rate. That means the $1,000 you withdraw might only net $780 in spending power if you’re in the 22% tax bracket or $880 for those in the 12% tax bracket.

The Rule of $1,000 isn’t the only rule that provides ballpark projections of how much you’ll need to save to boost your retirement security. Here are other ways to estimate how big a nest egg you’ll need.

Rules of thumb by the numbers

70% Rule

This rule says your retirement spending will be 70% of your pre-retirement post-tax income, according to Experian, a credit rating agency. For example, if your after-tax income is $100,000, your estimated retirement spending will be $70,000 per year or $5,833 monthly.

10X Your Age 67 Salary Rule

Fidelity Investments uses a formula that considers age and salary when trying to estimate how much you need to sock away to fund your lifestyle after you stop working. For example, Fidelity recommends aiming to save 10 times your pre-retirement income by age 67. So, if you make $100,000 $125,000 per year, you should have $1.25 million saved by the time you retire.

Rule of 120

This rule is a take on the old 100-minus-your-age technique to get the proper stock allocation in your portfolio. The ‘Rule of 120’, however, says subtract your age from 120 to calculate how much of your 401(k) should be in stocks. For example, if you’re 65 years old, you’ll subtract 65 from 120 to get a stock portfolio weighting of 55 percent. A 40-year-old would have 80% of retirement plan assets in stocks.

This rule, while providing some guidance, has weaknesses, too, says Grover. What it doesn’t do is tailor the plan to reflect the real spending needs of retirees. It also may underestimate how long retirement dollars must last given increased longevity, potentially creating an asset mix that lacks enough growth to ensure a retiree won’t outlive their money. “I truly believe that we become too conservative too quickly as we get closer to retirement,” said Grove. “We have to remember that our money needs to last 20 to 30 years.” The takeaway: a 65-year-old might need a larger stock allocation than 57% to avoid running out of money. For an updated take on this rule, read The Rule of 120 Minus You.

80% Rule

The 80% rule says 401(k) savers should aim to sock away enough cash to replace 80% of their pre-retirement income. So, if you finish your career with a salary of $100,000, you should shoot for a nest egg that can generate $80,000 in annual income. If you’re 65 and expect to live till age 85, you’ll need a nest egg of $1.6 million to last 20 years. The risk? If retirees spend as much in retirement as they did during their working years, says Grover. “Many of my clients are spending more, especially in the first five years of retirement,” said Grover. “The to-do list is getting checked off. Lifestyles don’t change that much.” Grover recommends a plan that replaces 100% or 110% of pre-retirement income. “The goal is to replace all of the income you’re actually spending now.”

Using this guesstimate, you’ll need to save 25 times your estimated annual expenses in retirement. If you think you’ll need your savings to throw off $60,000 in income, or $5,000 a month, for example, you’ll need to save $1.5 million

How to make up a savings shortfall

If you crunch the numbers but don’t have enough saved in your 401(k) or IRA to make the $1,000-a-month rule or any of the other rules of thumb calculations work for you, here are steps you can take to close the savings gap, according to Guardian Life, which offers investment advisory services and retirement savings products such as annuities.

Increase your savings rate. You can always bolster your retirement savings balance by saving a bit more each year. And that applies to folks in their fifties, “many who will be in their peak earning years and be able to put aside more than they might have been able to in prior years,” according to Guardian Life in a blog post, “Getting ready to retire in 7 steps.”
Make catch-up contributions. Once you reach age 50, the tax code allows you to boost your retirement plan contributions beyond the typical contribution limits. For 2025, the catchup contribution for those 50 and up is $7,500 and $11,250 for those ages 60-63. ("With catch-up contributions, you can build your retirement fund even faster,” says Guardian Life.”)

So, should you use any retirement rule of thumb?

Despite the drawbacks, that’s not to say there’s no useful information that can be gleaned from these ballpark calculations, says Steffen.

“You have to start somewhere, and maybe this a place to start,” said Steffen. “But if I’m a 62-year-old and I’m trying to decide if I can retire now or do I need to work a few more years, I don’t want to use one of these catch-all benchmarks. As you get closer to retirement, you need a more customized financial plan.”

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Adam Shell is a veteran financial journalist who covers retirement, personal finance, financial markets, and Wall Street. He has written for USA Today, Investor's Business Daily and other publications.