50% of Americans wildly overestimate how much income $100,000 in retirement savings can produce, NIRS finds

A recent study by the National Institute on Retirement Security (NIRS) reveals that 50% of Americans are significantly overestimating how much income a $100,000 retirement savings balance can produce. When surveyed, 19% believed they could withdraw $25,000 or more annually, while the correct figure, following the commonly used 4% rule, is just $4,000 in year one.

This misconception can have serious consequences, as Steve Azoury, a financial advisor, warns that not properly calculating how far your money will go in retirement can lead to running out of funds and jeopardizing your lifestyle. Moyer Financials owner Caleb Moyer adds that the first several years of retirement are critical, as funds are usually taken out of investments for the first time, making a safe withdrawal rate crucial.

To estimate how much income your savings can generate, subtract your expected annual expenses from your guaranteed income sources like Social Security and pensions. The remaining gap should be covered by your savings. Using the 4% rule, multiply your annual dollar gap by 25 to determine the amount you need invested, such as $60,000 needing $1.5 million.

While the 4% rule is not perfect, it provides a solid starting point for planning your retirement savings needs.