Sometimes, rules are meant to be broken. I’m not referring to anything illegal, but there are some retirement rules that shouldn’t necessarily be followed.
Retirement is a complex task, so there are plenty of rules of thumb that exist in an attempt to make this subject easier to understand. Although these rules aren’t intentionally malicious, they won’t always apply to your unique financial situation.
Here are two of those retirement rules you can ignore, and some focal points on what to do instead:
Rule #1: You need a million dollars to retire
A million dollars certainly sounds like it would serve you well in retirement. However, the notion that you need this amount is one of the retirement rules you should ignore.
There isn’t a one-size-fits-all nest egg amount, because everyone has different spending needs and goals. If you’re traveling frequently in retirement, for instance, you can end up spending more than you did in your working years. For others, a million dollar nest egg could be overreaching.
Instead of blindly aiming to build a million-dollar nest egg, create a retirement roadmap based on your specific needs and goals. This will allow you to hone in on a retirement number that’s bespoke to you.
Rule #2: Switch out of stocks once you near retirement
Another one of the retirement rules you should ignore is the idea that you need to switch out of stocks as your golden years approach. The idea behind this rule is that stocks are risky, and you need to trim down this risk when you retire.
Although stocks can be riskier than bonds and other investments, that risk is largely mitigated over a longer time-frame and most people underestimate how long their retirement will last. Humans are living longer than ever thanks to advances in science and medicine. As the Social Security Administration points out, “About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.”
If you completely leave stocks before you retire, you could be cutting your nest egg short. It’s often necessary to have the growth of stocks still in your portfolio.
Rule #3: You should contribute 10% of your income towards retirement
Another one of the retirement rules you can ignore is the notion that you need to contribute 10 percent of your income towards retirement. Since most people no longer have a traditional defined-benefit pension plan and are concerned about the future of Social Security, the 10% figure probably won’t be adequate. This especially holds true for the many that have procrastinated retirement planning, and are playing retirement catch up later in life.
I recommend the 20-30-50 plan for starters (utilizing around 20 percent of your income for investing). Your retirement plan should be conservative and plan for longevity. It’s better to have a little more wealth in your retirement than to fall short.
Learn more about the retirement rules you should ignore
At LexION Capital, we tailor bespoke retirement plans to meet each our our clients’ unique goals and needs. If you’d like to learn more about our personalized approach to retirement investing, let’s have a conversation today.