The “7 Rules of Retirement Planning” and Other Nonsense

I’ve seen countless articles out there that give a nice and neat outline of everything “you” need to know about retirement. They list rules and guidelines “everyone” should follow, tell you what types of investments you, as a retiree, should buy, and really – with all of that information out there, why do you need an investment advisor at all?

The trouble with these articles is that they are generic, while every person’s situation is unique. Therein lies the problem: too many people read these types of articles and think they are either doing well, or not, on a broad, one-size-fits-all scale. One recent article I read recommended retirees save 10 percent of their incomes for retirement. Save 10 percent for retirement? Really? Why 10 percent?  The amount you should save should be as much as possible, balancing today’s needs and your future needs – there isn’t one magic number. If you want my rule of thumb: it’s better to save too much than not enough.

Another “rule” I’ve read says you can expect 7-8 percent returns. Not over the last decade! The DOW is about 2.6 percent plus dividends! Many of us – myself included – would like to think that the market is going to return to 7-8 percent over the next ten years, but given the debt issues and demands baby boomers are placing on Social Security, Medicare and Medicaid, I don’t believe that’s a reasonable expectation.

One of the most popular percentages in the retirement market is the 4 percent withdrawal rate, as in, retirees can assume they’ll be able to withdraw 4 percent of their retirement savings per year during retirement. The theory is based on earning that 7-8 percent return, spend 4 percent, and reinvest the remainder to keep up with inflation. Well, MorningStar (an Independent Investment Research company) came out earlier this year with the position that retirees should withdraw no more than 2.8 percent of their assets in any given year if their goal is for their money to last for their whole retirements.

Ultimately, your retirement is as unique as you are, and to enjoy it successfully, you and your retirement advisor should work together to make up your own rules.

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