Let's face it, planning for retirement can be confusing. The stock markets go up and down, and prices keep rising for everything from a carton of eggs to laundry liquid. Saving for retirement can feel like trying to find your way in the dark. There are so many different opinions, complicated charts, and expensive advisers that most people simply give up and hope for the best.

However, there is a formula you can use that can give you a pretty decent idea about what you might need. It is the Rule of 25, and the rule is straightforward.

You take the amount you plan to spend each year in retirement and multiply it by 25. That final number is your savings target. If you want to spend $30,000 a year, you need $750,000 saved. If you want to spend $100,000, you need $2,500,000. It sounds almost too easy, and in many ways, it is brilliant. But like any rule of thumb, it comes with both real advantages and some serious drawbacks that anyone planning their future needs to understand.

Let us start with the good news, because the pros of the Rule of 25 are genuinely powerful. The most obvious benefit is its stunning simplicity.

Retirement planning is famously confusing, full of jargon like annuities, drawdown rates, and volatility risk. The Rule of 25 cuts straight through all the mumbo jumbo.

Any normal person sitting at their kitchen table with a cup of coffee can work out their target number in about 30 seconds. All you need is a rough idea of your yearly spending and basic multiplication skills.

This alone is a huge deal, because having a clear, memorable target is far better than having no target at all. Let's face it, a lot of people feel paralysed by the complexity of retirement planning. The Rule of 25 provides a much needed starting point.

Another major advantage is the psychological boost it gives you along the way. Saving for retirement is a very long game, often lasting 30 or 40 years. Without a clear finish line, it is easy to lose motivation and give up.

The Rule of 25 changes that by giving you a concrete number to track. You can watch yourself get closer each year, moving from 10 per cent of your target to 50 per cent and then to 80 per cent.

That sense of progress is incredibly motivating. It turns retirement saving from a vague, frightening fog into a manageable, step-by-step journey. Many people who follow the rule report feeling more in control of their financial lives, not because they have suddenly become investment experts, but because they finally understand what they are aiming for and what the end game should be.

The rule also encourages smart financial habits. When you know your target number is 25 times your annual spending, you quickly realise there are only two ways to reach it faster. You can save more, or you can spend less. Either approach works.

The rule does not force you to live on a cup of soup, but it does make you think carefully about what you truly value. Fancy cars and expensive holidays look different when you understand how much extra savings they demand.

In this way, the Rule of 25 gently pushes people towards more mindful spending without feeling like a punishment.

However, the Rule of 25 is far from perfect, and its weaknesses are serious enough to give anyone pause. The biggest problem is that it assumes a 30-year retirement, which comes from the famous 4 per cent rule.

The idea was that you could safely take out 4 per cent of your savings each year without running out of money for three decades. That works perfectly if you retire at 65 and live until 90. But what if you retire earlier? What if you are lucky enough to live past 100?

Suddenly, the rule starts to look dangerously optimistic. If you retire at 55, your money may need to last 40 or even 50 years. In that case, taking out 4 per cent each year becomes much riskier. You would likely need a more cautious approach, perhaps saving 28 or 34 times your annual spending instead of just 25.

Another major drawback is something called sequence of returns risk, which sounds complicated but is actually quite simple. Imagine you retire with $1 million saved, feeling very proud of yourself for following the Rule of 25.

In your first year of retirement, the stock market tumbles and your portfolio loses 20 per cent of its value. You still need to withdraw $40,000 dollars to live on, but your pot is worth less due to market downturn.

That withdrawal takes an even bigger bite out of your remaining savings. Even if the market recovers in later years, the damage is already done because you locked in those early losses by selling when prices were low.

The Rule of 25 does nothing to protect you from market fluctuations. It assumes average returns over time, but real life does not happen with averages. It has highs and lows.

Retiring just one year earlier or later can make an enormous difference to your finances with this rule, and the rule offers no advice on how to handle market changes.

Inflation is another quiet danger that many people overlook. The original 4 per cent rule assumed that your withdrawals would rise each year to keep up with rising prices.

That is fine in theory, but real world inflation can be unpredictable and sometimes brutal. If you retire just before a period of high inflation, your carefully planned withdrawals may quickly become inadequate.

The cost of food, air conditioning, and healthcare could outpace your investment growth, forcing you to eat into your savings much faster than expected. The Rule of 25 simply cannot predict or prevent this.

It works best in stable economic conditions, but retirement lasts decades, and the economy rarely stays stable for that long.

It is also worth noting that the Rule of 25 was built on historical market data from the US, however there is no guarantee that global markets will perform as well over the next 30 years. Some financial experts argue that future returns are likely to be more modest, which would make the 4 per cent withdrawal rate less safe.

So where does this leave the ordinary saver? From my perspective, the Rule of 25 is not a promise or a guarantee. It is like a compass, but not a map, it will point you in the right direction, but you still have to watch where you are walking.

If used wisely, it can change your financial life for the better, but if used blindly, it could leave you short just when you need security the most.

• Carla Seely is the chief operating officer at Freisenbruch Insurance Services Ltd and has 26 years of experience in international financial services, wealth management, and insurance. During her career, she has obtained several investment licences through the Canadian Securities Institute. She holds the ACSI qualification through the Chartered Institute for Securities and Investments (UK), the Qualified Associate Financial Planner (QAFP) designation through FP Canada, and the Associate in Insurance (AINS) designation through The Institutes. She also completed a Master's Degree in Business and Management through the University of Essex.

• For further inquiries or suggested topics, e-mail: justaskcarla@outlook.com