New Retirement Planning Rules You Need to Know
The rules have changed when it comes to retirement planning. Skyrocketing medical expenses, changes to social security, and a constantly rising cost of living make the retirement process much different than it was just 10 years ago. The best way to really understand the current situation lies in a thorough examination of the old rules and how retirement planning rules have changed. For example, traditional wisdom said save 10% of your income and work for around 40 years, then you can retire in comfort. Now, that often isn’t enough. The old rules involved investing mostly in bonds when approaching retirement. Now it’s better to have a diverse portfolio.
Traditional wisdom, while not completely outdated, doesn’t update itself for modern changes. The old rules serve as good a good starting point, but they must take into consideration recent changes in the economy, technology, and how the system works. Here’s a new way to think about retirement:
Saving Ten Percent of Your Income for 40 Years
From childhood, many people learned from parents and schools that saving 10% of money they earned over the course of their working life would be sufficient to retire and live well. Today, that rule stands on shaky ground. If a person saves for forty years, it might work, but it depends on their lifestyle, how much they earned and how much they were able to save over that lifetime.
Withdraw Up to Four Percent from Nest Eggs During Retirement
This worked well when people did not live into their 90s. Nowadays, four percent could drain an account long before the retiree passes away. Retirees need a flexible approach dictated by the market, making allowances for contingencies.
Purchase Bonds as Retirement Approaches
Bonds long held a position of stability compared to stocks, a holdover from major financial events of the past. Now, bonds do not provide the same safety, forcing people to consider diversification again.
Fewer Health Care Obstacles
Health insurance once dictated retirement because of difficulties in acquiring private insurance and higher premiums for the aging population. Health reform stepped in and changed all that. Those considering retirement now have more options and a guarantee of coverage where none existed before.
Retiring Early = Tradeoffs, Present and Future
Retirement income, always a difficult challenge, became more difficult in recent years. Persistently low interest rates that encourage borrowing drastically reduce income from savings, leading to a perpetual decrease in savings and an ever-increasing debt burden. Now, those looking toward retirement must cut costs and debt at every opportunity and save more earlier.
Other things to consider include downsizing living space, minding spending during the first ten years of retirement, and finding alternative forms of income. Click here to schedule an appointment with David to review his retirement plan services.
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