We’re in the Money: Myth vs. Reality for Retirement Rules

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By Alex Jones

If your goal is to save enough to fund a long retirement, and you’re not sure how to start or how to catch up, remember there’s more than one path to success. Retirement rules that work for some may be a myth for others. Here’s why knowing that some retirement rules are myths could potentially benefit you in your quest for long-term retirement success.

Set Aside ten Percent of Your Current Pay
This is a nice, simple number; too bad it only applies to the younger saver. If you’re nearing retirement age and have just started to build a nest egg, putting ten percent in savings may not be enough to create a comfortable cushion. Saving takes time; put aside whatever you can manage.

100 Minus Your Age Equals the Percentage of Stocks to Keep in Your Portfolio.
If you’re forty-years-old, for example, this rule recommends keeping sixty percent of your portfolio in stocks. The problem is, this equation is too reductive to apply to the many possible nuances in personal retirement strategies and goals. Instead, consider creating an asset allocation that matches your risk tolerance, time horizon and financial goals. And be willing to adjust it more than once a year. Investing involves risk, including loss of principal.

You’ll Need seventy Percent of Pre-Retirement Income in Retirement
While a thirty percent reduction in spending may work for some, this number is going to fluctuate over time. To make a better estimate of post-retirement spending needs, take a look at your expenses. What will change when you retire? Some expenses will probably go up (healthcare costs), some will go down (wardrobe bills, car payments), and many will remain the same (grocery bills).

A Sustainable Withdrawal Rate is four Percent
Determining how much money you can safely withdraw from your savings and investments in retirement is an important calculation. But no one can predict how much money you’ll need to sustain a comfortable retirement. Only time will tell.

You Can Always Count on Social Security
Social Security is not designed to replace pre-retirement income, so it’s best to view it as a helping hand – and not as a central source of funding. Also, we’re living longer than before, and incurring higher health care costs. You’ll be better served to plan on covering these types of expenses using 401(k) funds and other forms of savings.

The Only Rule that Matters: Stay Flexible
There’s only one rule you can successfully follow in retirement: to stay flexible. Have a plan, stick to it and be prepared to reassess and modify as time goes by.

 

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