The $1,000-a-month rule for retirement

For every $1K in monthly income you want in retirement, you need to have saved $240K

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Here’s an interesting rule of thumb that most retirees and would-be retirees would do well to adopt. Developed by U.S.-based financial planner Wes Moss, it’s called “The 1,000-Bucks-a-Month Rule.” It means that for every thousand dollars in monthly income you want in retirement, you need to have saved $240,000.

So if you want $2,000 a month from your investment portfolio, this rule suggests you’d need to amass $480,000, which just happens to be close to the minimum amount ($500,000) that “happy retirees” in the U.S. tend to have saved up. Note this rule is to generate investment income that is above and beyond pension income, government pensions like Social Security (in the U.S.) or the combination in Canada of CPP/OAS.

This guideline suggests that if you want $4,000 a month from investment income, in addition to the usual alternative sources of income, then you need to have saved almost a million in liquid investments: $240,000 times four is $960,000. If you wanted $10,000 a month, then you’d need $2.4 million, etc. It also assumes you’re at least 60-years-old, although it will be a useful benchmark even for those younger than 60 and who aspire to an early retirement.

Moss uses this handy guideline in his practice (a Georgia-based investment firm called Capital Investment Advisor, of which he is chief investment strategist) as well as on his popular financial radio show, Money Matters.  It’s also his number one tip in his recently published book. This is one I think most MoneySense readers would be interested in: You Can Retire Sooner Than You Think: The Money Secrets of the Happiest Retirees.

So how does Moss arrive at this rule? It’s based on a 5% annual withdrawal rate, which means that $240,000 in investments would spin off $12,000 a year in some combination of interest, dividends and other income (which Moss calls distributions). Divide the $12,000 by the 12 months of the year and there’s your desired thousand bucks a month of income.

But 5%? Who can get 5% these days from bank deposits or even stocks? This is where it gets interesting. Note first that 5% is close to the 4% safe withdrawal rule made famous by financial planner William Bengen. He found retirees could withdraw 4% a year from a balanced portfolio and not run out of money for at least 30 years. (He includes an inflation adjustment but we’ll ignore that here). Moss is a big fan of income investing so right off the bat you can get close to 5% in certain high-yielding dividend stocks (telecom or utility stocks for example, even REITs). You’ll get perhaps 2% or 3% from fixed income, depending how much risk you want to take but what about the rest? How does Moss stretch Bengen’s 4% to 5% in this low-yielding world?

The rest comes from growth or capital gains, which year by year will fluctuate or even be negative, but over the long haul can be another 1% to 3% on top of the more assured yield from income investing. At worst, it may involve cutting slowly into capital but as long as your income investments are generating by themselves 3% or 4%, Moss assesses that such a nest egg would easily outlast the average 30-year retirement time frame.

There’s plenty of other stuff in the book but I’ll close with just two more points. Like myself, Moss believes retirees should have completely paid off their home mortgage. And he’s not a big fan of annuities.

Jonathan Chevreau is the editor-at-large of MoneySense. He blogs here and at Find him on Twitter @jonchevreau.


18 comments on “The $1,000-a-month rule for retirement

  1. So some guy says to use a 5% rule instead of the 4% rule that research has repeatedly validated. You advise retirees to ignore such research and listen to the guy.

    So let me ask: why do you think he’s right? Or did that not matter when you wrote the article?


  2. If you start depleting your capital or principal then in my opinion you have a failed investment plan, strategy and financial plan. A $960,000 portfolio today should easily earn minimum $40,000 a year in annual income over the next 30 years and you should have at least $2,250,000 in investments in 30 years.


    • I’ve hit the 10.5% to 16% in two separate accounts in 2013 and pushing 10.9% so far this year with no money going in. I am projecting that 4-5% per year is including those bad 35%+ years for the rest of my lifetime (30+ year) after retirement that I will be able to “live” comfortable. I think what we are really aiming for is being comfortable and NOT having to go back to work. I like this 4-5%…I can live with that, but will probably need a bit more if I retire earlier than 62. Thanks for the articles.


  3. This article is a bit disturbing to me, not by what it says, but by what it leaves out. Is the $1000/month inflation adjusted as time goes by? What happens if I just retired in 2008 before the Great Recession, and now my $480,000 is worth $240,000? How do I take out per year now? I know, I always hate it when reality spoils a good article.


  4. This is really quite alarming, especially when reading about how 20 percent of Americans do not have any retirement savings.


  5. I’m tired of reading over and over again, not only in articles but in the comments as well, that using your capital is a bad thing. The capital preservation model is insane. And everyone says our home should be paid for but, never incorporate the value of said home into the mix either through a reverse mortgage or selling of said home. Rarely do people live into a ripe old age of 95 and still reside in their home. While medical science does have us living longer, we’re not living longer AND healthier. Now, I don’t know when my spouse and I will pass away, however, I do know that we both will. Using the statistics surrounding our (everyone’s) genetic predisposition to death, and the age at which our parents, their siblings, and our own siblings have passed away it’s relatively (no pun intended) easy to look at our own current health and come up with some estimates about how long one, or both of us, should live.

    We have no desire to die rich, or leave a significant estate to fight over. Using that information, along with purchasing Long Term Care Insurance that pays a monthly benefit if one of us cannot perform some of the tasks of daily living (if one spouse is on claim the other spouse’s premiums are paid by the insurance company), including the value of our home in the calculations, and our savings; the picture becomes a whole lot rosier. While incorporating inflation into the mix is important and some costs increase, keep in mind that as we age many of the activities and costs in retirement disappear or go down. Things like travel, medications (most provinces have plans for seniors), vehicle replacement, etc..

    I didn’t inherit money from my parents, nor did my spouse. At Age 54 we have just over $750K in savings and $350K in home equity. Unfortunately, I started later in life than my spouse otherwise we would have more. We have counselled our two daughters about investing for their retirement and have watched them take it to heart. So, we can rest easy knowing they will do well by themselves and won’t need our hard earned/saved money in order to fund their retirement.

    I encourage others to consider a capital depletion model rather than leaving a significant windfall for the taxman after death. After all, we didn’t spend our lives saving just to be afraid to spend it for the reasons we accumulated it in the first place.


    • I am on board with GOxner’s suggestion about depletion of capital


    • This is problem with Canadians and I would say Americans as well. A family is a team, a unit that should have a strong financial foundation. Until they understand that they will continue to be in debt and will be worse off financially. If you want to deplete your capital or principal. Go right ahead.

      The fact remains that you failed financially because if you were successful financially, you and your family would have more money in the future.

      Canada’s social programs are not there to help us but were and are an excuse for government to put taxes, fees etc. Try living on what they are paying.

      The politicians and government workers should live by the same rules, taxes, pensions as all middle and lower income Canadians.


      • Don Sanderson, I respect your opinion about success and failure financially. However, that is your own opinion based on personal circumstances, upbringing, cultural, personal, and moral biases. Just as is mine. Retirement on the capital preservation model was created by those in the financial services industry who make their living by having investments, be it mutual funds, segregated funds, index funds, ETF’s, GIC’s, or brokerage accounts. Saving the principal and only living off the earnings continues to generate income for advisor, brokers, banks, and all the other companies vying for our savings. I know this after spending several years as an advisor in the industry and a decade investigating those advisor who skirted the rules or promised more than they could deliver.

        For those who wish to leave an estate or legacy behind when they’re gone that model works just fine and I respect their plan. I just happen to disagree. To suggest I have failed financially because I don’t care to have more money in savings the day the plant me in the ground than I do today misses my point entirely. And again, is an opinion based on a personal point of view. If living on $40K from a $960K nest egg and having $2.25M thirty years later is what you choose to do for your family all I can say is, congratulations. You were successful based on your own personal measure of success.

        However, the larger percentage of Canadians do not have the financial ability to save a significant amount for retirement let alone the luxury of leaving a legacy for family or charity. My point was intended to suggest that a very significant number of Canadians will need to use the capital depletion model where the same $240K will generate nearly fifty percent more income. That additional income could make quite a difference to someone on the lower end of the income scale. I guess really what I was trying to say is that the average person hearing they will need to have $1.4M to retire (or whatever number the financial gurus say at the time based on capital preservation) must be so disheartening and must seem to make retirement an impossibility to many. I would rather see people being encouraged to look at what they can do given their own personal circumstances to work towards retirement in whatever form retirement means to them.

        My apologies Mr Sanderson if I am a failure in your eyes. But, not to worry…In my eyes and that of my spouse and family, I’m a success, and those my friend are the only ones that matters to me.


        • Couldn’t have said it any better than GOxner. The Financial investment world is very happy you keep your capital completely intact so they can collect the 1.5 to 2.5% mer charges for their retirement.


        • Thanks GOxner! As I was reading this all I could think is that this does not work for an average, blue collar family…great advice if you have money to spare..Thanks for wording this so eloquently! :)


    • Here…..Here. The purpose of saving in our earning years is to build that nest egg and spend and enjoy in retirement.


  6. While the figure in the article should be viewed ONLY as a rough guestimate, I don’t consider it a “rule” as such. The calculation is overly simplistic. The following come to mind even before examination:

    1. The article calculates $12K/year at $240K invested at 5%. That’s simple interest payable in arrears, at the end of the year (expecting the retiree to live on love during the year?)
    2. The article assumes that the CRA loves retirees and doesn’t tax seniors. The facts are inverse. Seniors are hugged by the CRA with the highest possible marginal tax rate reserved for seniors only.,
    3. The article assumes that inflation will be zero. Has anyone visited a go-go-juice armed bandit (gas station) lately, or bought a bag of groceries or paid their utilities. Inflation is here, and remains much higher than the politically adjusted figure published by the government agencies. …not to mention medical bills and related costs that normally increase with age.

    Actually, based on the article, and its assumptions alone (see above cautions), the figure for the capital that would be required is the PV of 360 monthly payments, paid in advance (at the beginning of each monthly period during 30 years ) is $189,428.32. For the figure of $240K per $1K in monthly income is to be nearly accurate at a net after tax monthly earning of 5%, paid in advance, inflation would have to be factored in at 2%. IMHO, that 2% is overly optimistic and unrealistic.

    All this returns me to the recurrent conclusion that financial planning by slogans / “rules” is hazardous to say the least. Each case has its own unique set of circumstances and financial environment considerations, therefore meriting ongoing review and consultation with skilled financial advisors who hold the consumer’s interests as first and foremost and who will make their assessment and recommendations on the basis of the best interests of the client rather than just and merely “suitability” or reliant on sloganistic “rules”.


  7. I found the article interesting and informative as I had never heard of the $1,000 a month rule. I am recently semi-retired at 54 with $800K in investments (now 65% fixed income/35% equity) so this was relevant to me.


  8. In Canada we have to take out .0738 % per year after the age of 71 and this rises as we get older, when do we run out of money?
    At todays interest rates it is not long


  9. $1,000 month rule isn’t bad as a guide.

    Another method involves establishing the amount you want for your annual retirement salary and multiplying by 20 – assuming a 5% annual withdrawal rate. Hence, $1,000/month = $12,000/year. Multiply $12K x 20 = $240,000 of capital required to generate that income in perpetuity.

    If you assume a more aggressive 6%, multiply by 16.66 (i.e. then, $200k gives you $1,000/month). If you assume a more conservative 4%, multiply by 25 and you’ll require $300,000 to generate $1,000 /month.

    Interesting that Mr Moss is “not a big fan of annuities.” If a 71 year old male (wed to a 69 year old female) converted his RRIF to an annuity, they could receive 6.6% for the rest of their lives (w/ a 10 yr guarantee to surviving beneficiaries). So, that same $240,000 would generate $15,840 per year or $1,320 of income per month. That’s 32% more income with a guarantee never to run out of money. What’s not to like?


    • Gord, it wouldn’t be deficient as a guide if we could at least reasonably assume zero inflation for the next 3 decades, and if we could reasonably assume no change in personal health between retirement age and 30 years hence. These, however, would be utopian assumptions for one who is blinded by rose-coloured blindfolds. As to annuities, the best of course, are defined amount indexed annuities; however, those are largely reserved for politicians and some civil servants, are not self-funded but funded by taxpayers.


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