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5 Ways to Break the Rules of Retirement Planning

Sarah Stevenson
By Sarah StevensonOctober 22, 2012
5 Ways to Break the Retirement Planning Rules

We all want our loved ones to be financially stable in retirement. But some of the conventional wisdom about retirement planning could be just plain wrong.

There’s no shortage of articles touting the “rules” for guaranteeing a perfect retirement. But as the ins and outs of financial planning become increasingly complex, it might not be so wise to unthinkingly follow the one-size-fits-all rules of thumb we’ve relied on in the past. Now more than ever, it’s important to be aware of our own financial planning, and whether we should follow the rules—or break them.

Rule 1: You’ll Have to Save a Million Dollars to Retire.

Whether the number is one million dollars or two million, you’ll hear a lot of advice about having to save up to a particular “magic number” in order to comfortably retire. The truth is, it’s much more important to figure out how much your loved ones will need each month during retirement and make sure they’ll be able to attain that amount. Jeff Rose of U.S. News and World Report‘s “On Retirement” blog says: “You can do this by building a nest egg, developing alternative income streams to supplement your savings, or with a combination of these strategies.”

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Rule 2: Withdraw 4 Percent Each Year from Your Retirement Accounts.

Again, another magic number. Conventional wisdom says 4 percent is a safe amount to withdraw in order to sustain the principal in your account relatively indefinitely, while also beating inflation and meeting your own needs. But as we’ve all seen over the past decade, markets can be unpredictably volatile, and 4 percent might not be sustainable all the time. “Consider your individual preferences and needs,” Jeff Rose says, “and adjust your withdrawal rate accordingly.”

Rule 3: Plan for a Life Expectancy of 78 Years.

It’s a fact that the CDC currently reports an average life expectancy of 78.5 years. It’s also a fact that if you make it to 65, there’s a good chance you’ll make it 80, 85, or even longer. The Social Security Administration reports that people turning 65 today can expect to live, on average, to age 83 for men, and age 85 for women. So planning for only 20 years of retirement may leave you or your loved ones out in the cold.

Rule 4: In Retirement, You’ll Spend More Money Than You Make.

It might seem inevitable that retirement involves watching one’s hard-earned savings dwindle month by month. But Joe Udo—also of U.S. News and World Report‘s “On Retirement” blog—says that net worth can actually grow during retirement. His tips include staying invested in the stock market, earning money through part-time work, and, where possible, decreasing spending.

Rule 5: A Financial Plan Is All You Need for a Successful Retirement.

Financial planning is by no means the only important planning seniors need to do before retiring. Many people assume that a lack of a day-to-day schedule is what they’re looking for in retirement, but the truth is, it’s easy to feel bored and aimless without a plan for transitioning into a less-structured lifestyle. It’s important to go beyond the money management aspect of retirement and plan for health, social activity, work and hobbies.

What have you and your loved ones been doing to plan for retirement? Let us know in the comments.

Sarah Stevenson
Sarah Stevenson

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