I was scrolling on Facebook just a few minutes ago when something caught my eye.

It was a comment from a member of a Facebook group called The Designer Collective.

Apparently, she was offering advice to the OP (original poster) about how to connect with the manager of a restaurant in order to gain a job opportunity. 

Her comment reads, “Our local bakery is one example. They’ve never done any marketing in their 38+ years and they still sell more than 300 chocolate chip cookies every day.”

When I read that I was like…that’s not a lot.

If an average cookie costs $1.00 and the bakery sells 300 cookies per day…

That means the Bakery only makes $300 per day.

Pffft. Pathetic. I make more than that.

At least that’s what I thought.

So, I whipped out my calculator and entered in some quick numbers and what came out was $162.4.

…

I know. Shocker.

I can’t believe I only make $162.4 dollars per day. 

I have big goals and big dreams to fulfill, and one of themis to be financially independent by the time I retire.

To ensure I have enough money to sustain me when I retire, I will need to determine how much money to save by the time I retire.

The Multiple by 25 Rule

According to this post from thebalance.com, the Multiply by 25 rule helps you estimate how much money you are going to need in retirement based on your desired yearly income. You do this by “multiplying your desired annual income by 25”.

In other words, if I want to live off $75,000 in retirement each year, I will need $1,875,000 by the time I retire ($75,000 x 25 = $1,875,000).

Personally, I want to live off of $120,000 per year. I was going to say $100,000 per year, but why settle for less when I can go for more?

In order to live off $120,000 per year, I’ll need $3,000,000 by the time I retire. But that doesn’t take into account inflation or anything.

The other rule that I’ve heard about is the 4% rule.

The 4% Rule

The 4% rule states that you want to take out 4% of your retirement money every year and the year after that. 

That means if my retirement portfolio is $3,000,000, I would need to take out $120,000 the first year and every year after that. 

Then in the second year, I would take out another $120,000 plus any additional money I need to take out after it has been adjusted for inflation. 

For example, if the inflation rate in the second year is 3%, I would multiply $120,000 by 1.03—I don’t why it’s 1.03% and not 3%. Still learning, haha!—so, I would take out $123,600 the second year.

What is the Difference Between the Two Rules?

The biggest difference is that the Multiply by 25 Rule helps me determine how much I need to save in my retirement portfolio based on my desired yearly income.

The 4% Rule helps me identify how much I should withdraw from my portfolio each year when I retire.

What I don’t get is why I would want to know how much I am withdrawing each year. I saved this money so I could use it in retirement. Is this a rule that will help me sustain my money for the next 30-40 years of my life?

Also, when do I calculate my retirement age? I want to retire earlier than 65 and I never calculated that in the math above. So, how does this fit in the larger scheme of things?

Argh! I don’t understand at all.

Sigh. I’m pretty sure I will know more as I keep learning.

For now, here are my biggest takeaways: If I want to live off $120,000 per year in retirement, I will need to save $3,000,000 by the time I retire.

Can I do it? I don’t know. But I will and am going to do it.

Hopefully, these methods will help you get one step closer to your financial goals. How much do you want to save by the time you retire? Are you thinking about retiring at all? Comment down below because I’d love to know!