Rethinking Your Retirement Math: Why the Numbers Don't Add Up (and How CEFs Change the Equation)

When it comes to retirement planning, many investors unconsciously follow advice that sounds sensible on paper but crumbles under scrutiny. The widespread reliance on outdated benchmarks is creating a false sense of security—or unnecessary panic—depending on which side of the equation you’re on.

The “Rule of 25” Paradox

The so-called “rule of 25” is one such oversimplified framework. It proposes a straightforward premise: before retirement, you should accumulate savings equal to 25 times your anticipated annual retirement expenses. Sounds reasonable enough, until you do the math. Consider a hypothetical saver earning $100,000 annually who manages to set aside 20% (well above the typical American savings rate). Assuming a historical market return of 8.5%, reaching the “rule of 25” target takes roughly 29 years. For younger workers, that feels like an eternity. For those closer to retirement age, it may feel impossible.

Here’s the catch: this anxiety is fundamentally based on a flawed premise.

The Author Himself Walked It Back

William Bengen, who originally pioneered the “4% safe-withdrawal rate” concept in 1994—which underpins the “rule of 25”—eventually revised his own guidance. By 2022, Bengen had updated his recommendation to 4.7%, effectively adjusting the benchmark to approximately 21.27 times annual retirement spending. While this revision grounds the framework in more current data, it still operates within assumptions that may not reflect your individual circumstances.

The real problem? Both versions rely on a one-size-fits-all approach to a deeply personal decision.

CEFs: A Different Math Entirely

Rather than fixating on how much you need to save, consider what your savings can do for you while you’re retired. Closed-end funds (CEFs) offer a compelling alternative by converting the market’s historical 8.5% annualized gains into steady cash distributions that retirees can live on—without forcing portfolio liquidation.

Take the Liberty All-Star Equity Fund (USA) as a case study. This diversified equity CEF holds blue-chip names like Microsoft (MSFT), Visa (V), Amazon.com (AMZN), Wells Fargo & Co. (WFC), and Broadcom (AVGO). Currently, USA generates a 10.6% yield by systematically distributing its portfolio gains as dividends.

The math changes dramatically here. Instead of needing nearly $2.5 million in savings to follow the traditional “rule of 25,” that same retiree would need approximately $943,000—achievable in about 17.5 years of disciplined saving at the same rate.

Why High Dividends Aren’t Unsustainable

Skeptics argue that CEF payouts of this magnitude can’t hold up. Yet USA has operated for 39 years, consistently delivering roughly 82.4 cents per share annually—translating to about 11.6% on its 1987 share price of $7.13. The fund survived the Cold War’s end, the dot-com collapse, the 2008 housing crisis, the protracted 2010s recovery, and the pandemic. That’s not luck; that’s a track record.

What truly impresses is what happens when you reinvest those dividends. An investor who systematically plowed USA’s payouts back into the fund would have realized a 1,840% return over multiple decades—turning modest monthly distributions into genuine wealth accumulation.

The Freedom That Math Provides

The essential insight here changes the retirement planning equation entirely. With CEFs yielding 9% or higher, retirees gain the flexibility to cover living expenses from distributions alone, regardless of market volatility. This removes the pressure to sell shares during downturns—the exact moment when selling is most damaging.

Your retirement timeline doesn’t have to stretch across three decades if you’re willing to challenge conventional wisdom and align your portfolio with income-generating vehicles built for exactly this purpose. The math speaks for itself when dividends work harder on your behalf.