Declare Your Financial Independence!

**Robert Brokamp** (0:03)
It's July 4th, the day America celebrates the adoption of the Declaration of Independence and the official birthday of our nation.
Nothing more American than financial independence. After all, retirement is the money-related goal shared by just about everyone. So we thought it fitting that in this installment of our 2026 Financial Planning Challenge, airing on America's Independence Day, that we focus on retirement. How do you know if your retirement plan is on track? And how will you know that you're financially ready to bid adieu to the working world? Here to discuss how to find the answers to those questions is my Foolish colleague, certified financial planner, Stephanie Marini. Welcome back to the show, Stephanie.

**Stephanie Marini** (0:44)
Thanks for having me. I'm excited about this one.

**Robert Brokamp** (0:47)
So we're going to go through various ways of assessing your retirement progress from very general guidelines to more customized assessments.
So let's first start off with the general stuff and talk about common retirement planning rules of thumb. And there are a bunch out there. And I would say most have at least some basis in good financial planning principles. Stephanie, what's a rule of thumb that you'd like to highlight?

**Stephanie Marini** (1:08)
My favorite is always the 50-30-20 rule. So for those who don't know, 50% of income would be allocated for needs, 30% for wants, and 20% for savings. And I like this one because for 80% to be going toward needs and wants feels like a really manageable percentage for most people.
And also it's a set it and forget it type of thing. If you can get within these guidelines, then checking it periodically is a little bit easier. And then also percentages are an easy way to tackle lifestyle creep or lifestyle inflation. As your income increases, the savings amount should be going up by percentage relative to your income going up. So it helps combat that too.

**Robert Brokamp** (1:54)
So any drawbacks to this rule of thumb that you feel like maybe a little misleading for some people?

**Stephanie Marini** (2:00)
Definitely. I mean, like a lot of these financial planning principles, it's general. So you have to apply it to your specific circumstance. Fifty percent does seem like a lot, but for those people living in Sacramento, New York, for those high cost of living areas, fifty percent might not be enough when rent is so high. So adjustments are needed. Also, once you factor in goals, someone who wants to retire and support extended family might need more than that 20 percent savings. So it just depends.
It's general, but there are some downsides to it.

**Robert Brokamp** (2:37)
Every summer, I teach a class to our interns at the Motley Fool. In the past, I've done it along with Buck Hartzell, a colleague who recently retired. I've used this rule of thumb every time. Then Buck always follows with 20 percent isn't enough. You should save until it hurts. So I just thought it's always good to throw out there. If you could save more, that's better. Buck just retired, so it worked for him. I'll touch on a related rule of thumb. This rule of thumb is 20 percent for savings, that's savings for everything.
When it comes to retirement, another rule of thumb is that 15 percent should be saved for retirement. That would include your match. So if you get a 5 percent match from your employer, you just have to put in the 10 percent to get the 15 percent.
I think it's a good starting point. I would just say that it is, assumes you are starting to retire or save for retirement at some point, maybe in your 20s, maybe early 30s. So if you're getting a late start on saving for retirement, maybe has to be a little bit more than that if you want to retire in the mid-60s and then I feel like when it comes to rule of thumbs, we have to of course touch on the old 4% rule. We've talked about it a lot on this show in the past. It started in 1994 with a report from Bill Bangen. He has since come out with a book saying, 4.7% is really the worst case scenario. If he were retiring today, he would choose five, five and a half percent. There's other reports that have found that 4% is probably too low. I'm just going to highlight one that just recently came out by David Blanchett of P-Gym. It's entitled Rethinking Safe Initial Withdrawal Rates. Thought this was interesting because he decided that you could provide guidance on safe withdrawal rates based on how much of your portfolio needs to cover essential expenses. So he found that if you need to cover all your essential expenses with a portfolio, for a 30-year retirement, safe withdrawal rate should be 4.4 percent. Maybe a moderate amount would be 4.9 percent, or if you have a lot of flexibility in your portfolio, 5.6 percent. So I'm just highlighting that as again, there's a basic rule of thumb, but there's a lot of research about how to customize it. Me personally, I think 4 percent probably should start at 5 percent for most people and then you can adjust for your circumstances. Let's move on to some guidelines that get a little bit more customized. These are age-based guidelines provided by many firms. In fact, most firms I would say have some guideline along these lines.