Today’s Puzzle:
Much like technology becomes outdated each year, retirement planning strategies begin to lose their effectiveness over time. Today we’ll look at five different planning ideas that have been used quite a bit before but might not have the same impact in today’s economy and market conditions.
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(Click the featured times below to jump forward in the episode)
The Solution:
Do you know anyone that is still clinging to a flip phone and refuses to move to a more modern form of communication? Much like cell phones and other technology, it doesn’t take long for things to become outdated.
Financial planning can be similar in the idea that certain strategies or rules of thumb might eventually become obsolete as the economy changes, interest rates move, and markets go up and down.
On this episode of Solving the Financial Puzzle, we’ll Nikki Earley whether or not these five retirement planning ideas are still as effective now as they first were.
The 4% Rule
Have you heard of this one before? Basically it states that you should be able to withdraw four percent from your portfolio every year in retirement without having to worry about running out of money. This one was thought up in the 90s and made a lot of sense at the time. But it’s based on the idea of having a million dollars and withdrawing $40,000 each year. Is that enough for your retirement?
Beyond that though, you have to consider how the market moves and that people are living longer as well. This might be a good guideline but you’ll want to work with a professional to find out if it fits you.
The 10-5-3 Rule
This rule says that you can assume a 10% return on stocks, a 5% return on bonds, and a 3% rule on cash. Well, when was the last time you got a 3% return in your savings account? You’ll have to think back a ways. The rule doesn’t really take into account market crashes or inflation so it might be okay to base it off historical averages but we probably wouldn’t suggest doing your financial planning off of this rule.
Moving from Stocks to Bonds
The idea for the longest time is that you move money from stocks to bonds as you get older to protect your investments. Most people need to their money to continue growing in retirement so being heavily weighted in bonds might not be very beneficial. It all depends on your situation and what you need from your investments so this might work but it might not.
$1 Million for Retirement
For the longest time, people have identified $1 million as the magic number to reach in your retirement account to be in good shape to stop working. There are many factors that will determine how much you need in retirement, including what type of lifestyle you want to leave.
Less Income in Retirement
Many people commonly believe that your income needs drop when you retire but think about your spending habits when you have free time. Do you spend less or more when you have more time on your hands? Sure, your daily expenses like gas and dry cleaning might decrease when you’re no longer working, but have you thought about healthcare expenses? This is an area many people overlook but could cost you a lot more later in life.
Listen to the entire episode or click on the timestamps below to hear more about the financial challenges faced by women and how to address them.
3:09 – Let’s start with the 4% Rule
6:55 – The 10-5-3 Rule
8:40 – Move from stocks to bonds as you get older
11:20 – Get to $1 million in your retirement account and your ready for retirement.
13:17 – You’ll need less income in retirement than you needed while working.
15:56 – What’s the process for someone wanting to meet and work on these items?
The Full Picture:
“Your money really does have to continue to grow in retirement.”
– Nikki Earley
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Additional Resources:
The host: Nikki Earley – Schedule A Time To Meet – Or Call: (513) 563 – 7526
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