The $1,000-a-Month Retirement Savings Rule of Thumb

A Helpful Way To Set Your Retirement Target

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Several financial rules and guidelines can be applied to generating retirement income. A simple and popular investment strategy for those saving for retirement is the $1,000-per-month rule of thumb. How much do you need to invest to make $1,000 a month?

The $1,000-a-month rule helps you gauge how much you must save in order to withdraw a certain amount monthly in retirement. Find out how it works, what pitfalls to watch out for, and how this rule of thumb compares with other retirement guidance.

Key Takeaways

  • You'll need $240,000 saved for every $1,000 per month in desired retirement income.
  • You can typically withdraw 5% of your nest egg each year with this strategy.
  • The right investments can help your savings last through a lengthy retirement.
  • Younger retirees should plan on withdrawing less to ensure that their funds last.

What Is the Origin of the $1,000-a-Month Rule?

This rule of thumb was created by Wes Moss, an Atlanta-based Certified Financial Planner (CFP) and financial educator. He designed it as a simple way to visualize how much in savings you should accumulate if you plan to retire at around age 65.

How Does the $1,000-a-Month Rule of Thumb Work?

The $1,000-a-month rule states that you'll need at least $240,000 saved for every $1,000 per month you want to have in income during retirement. You withdraw 5% of $240,000 each year, which is $12,000. That gives you $1,000 per month for that year.


The number of $240,000 multiples will vary depending on your income from Social Security, pensions, or part-time work. You'd need to save at least $480,000 before retirement if you want $2,000 per month.

The 5% withdrawal aspect of the rule becomes even more critical when interest rates are low and the stock market is volatile. The market can go months or even years without a gain, and the discipline surrounding the 5% withdrawal rate can help your savings last through these tough times.

Making Adjustments to the Rule

This rule of thumb does not apply equally to all retirees. Someone at a typical retirement age of 62 to 65 can plan on a 5% withdrawal rate from their investments based on the $1,000-a-month rule. But retirees in their 50s should plan on withdrawing less than 5% per year so that their funds last for the duration of a long retirement period.

The 5% withdrawal rate works well in years when the market and interest rates are in a typical historical range, assuming you're 62 years of age or older. But you must be willing to adjust your withdrawal rate in any year that the market experiences a downturn or correction. You'll have to be flexible enough to adapt to the economic environment as it changes. But you may be able to withdraw a little extra money in good years.


Inflation will also impact your retirement savings because $1,000 won't buy as much as it does now if you're looking at retiring in 20 or 30 years. The Federal Reserve strives to keep inflation to about 2% per year.

How To Increase Your Chances of Success

The success of a 5% withdrawal rate depends on a few factors. Retirement often lasts for more than 20 years. You want to be able to withdraw 5% of your savings each year and not run out of money.

Investing, instead of simply saving or only saving, can help ensure that your funds last through a lengthy retirement. Your money will last 20 years if you withdraw 5% while earning no interest on it. But retirement can last much longer for many people, and exhausting your funds doesn't allow you to leave money to family or charity.

You may be able to withdraw 5% or more if you have a portfolio yield of 3% to 4%. Withdrawing 5% would be well below your annual gain of 7% if your portfolio is earning a 4% yield from dividends and the markets rise by 3%. Any gains in the market can help boost your portfolio and increase the chances of being able to withdraw 5% per year.

The $1,000-a-Month Rule vs. the 4% Rule

The $1,000-a-month rule is a variation of the 4% rule, which has been a financial planning rule of thumb for many years. The 4% rule was first introduced by William Bengen, a financial planner who found that retirees could deduct 4% from their portfolio every year (and adjust for inflation) and not run out of money for at least 30 years. He said that retirees who had a mix of 50% stocks and 50% bonds and who lived on about 4% each year would be unlikely to run out of money in retirement.

Like the $1,000-a-month rule, the 4% rule has some limitations. Not all retirees want a 50/50 mix of stocks and bonds, and some may need more or less money in a given year. These rules are guidelines and intended to ensure that you save enough for retirement and don't withdraw funds too quickly.

Frequently Asked Questions (FAQs)

How do I save money for retirement?

There are many ways to save, and you'll want to find the opportunities that help you to best balance growth, risk, and tax obligations. It's generally a good place to start if your employer offers a 401(k) with a company match and you take advantage of that. Talk to an advisor about IRAs, Roth IRAs, and the right investment mix if that's not an option for you.

How much should I save each month for retirement?

Most financial experts recommend saving from 10% to 15% of your gross monthly income. Your exact amount depends on how much you want to have when you retire, your other sources of income, and how aggressive your growth strategy is. It would take you just over 12 years to save your first $240,000 if you deposit $1,000 per month with an average annual return of 7%.

What dividend strategy do I need to earn $1,000 a month?

Income investing lets you invest your funds in ways that will produce income. This might include buying stocks that pay dividends or investing in real estate investment trusts (REITs) or master limited partnerships (MLPs). MLPs are publicly traded. They tend to pay higher dividends to investors.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Wes Moss. "How To Use the 1,000 Bucks-a-Month Rule To Plan for Your Retirement."

  2. Board of Governors of the Federal Reserve System. "What Is an Acceptable Level of Inflation?"

  3.  William P. Bengen. "Determining Withdrawal Rates Using Historical Data," Pages 173-174. Journal of Financial Planning.

  4. Securities and Exchange Commission. "Updated Investor Bulletin: Master Limited Partnerships – An Introduction."

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