Sometimes it does pay to break the rules.
I’m not referring to anything illegal, but in retirement, many of the rules can cause more harm than good.
While it would be nice to have a handy one-size-fits-all guide for living your golden years successfully, the truth is that everyone’s retirement is incredibly unique. Although a “rule of thumb” can work well for cooking, it’s not something you want to apply to your life savings and livelihood for decades.
In my decade of helping individuals prepare for retirement, I’ve seen plenty of people take blanket retirement rules and apply them wrongly to their exceptional situations. Even worse, sometimes advisors will tote these rules to make financial planning simpler on their end. But don’t be afraid to break these rules.
Rule: You need to save a million dollars for retirement.
Retiring a millionaire sounds great at face value. But for many, this goal is overreaching, and for others, it falls short of the mark.
If the New York Times publishes an article calling it “the million-dollar illusion” and NASDAQ has a conflicting article saying that a million is too much for most, it’s a good indicator that you shouldn’t blindly follow this benchmark.
Instead, develop a financial roadmap based on your anticipated spending needs. Even if you can’t get your exact spending down, anticipating things like your cost of living, health care costs and other expenditures can give you a better sense of what you’ll actually need for a comfortable retirement.
While this might be true if you plan to sit at home for the duration of your golden years, studies show that retirees are becoming more active than ever. Thanks to fast-paced advances in health care, it’s become commonplace for retirees to do extensive travel, especially in their first few years of retirement. While increased limberness and longevity is a great thing, it can also account for a serious savings deficit. According to the Wall Street Journal, “The initial phase of retirement can be as expensive, if not more so, than working life.”
The Wall Street Journal put it best: “There is no such thing as a retirement budget that will take you through the two to three final decades of your life. In reality, there need to be several, depending on the current circumstances the retiree is facing.”
Rule: Plan your retirement to last until age 80.
Granted, this rule does have some solid research behind it: The average life expectancy is around 78.
What this rule doesn’t take into account is the statistics and possibility of living longer than 80 years. As the Social Security Administration points out about age statistics, “Those are just averages. 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.”
So if you plan to end your retirement right at the average age, you’re not only being pessimistic about life, but you’re essentially basing your retirement on a coin-flip scenario.
For many of my clients, I’ll advise them to make very conservative assumptions, and often even devise a plan that accounts for them living to 100. This isn’t just optimism; it’s careful planning. Whether you’re using an advisor or planning on your own, you should also strategize conservatively for a long life.
Women especially can break the rules in retirement.
Women can face a unique slew of issues in retirement. For instance, on average, women live longer than men and tend to bear more of the brunt of taking care of extended family. They are also more likely to leave and re-enter the workforce with a decreasing earning potential. When you start applying extensive statements to special concerns like these, you have a recipe for disaster.
It’s not that these rules are completely flawed or need to be broken all the time; it’s simply that sometimes they won’t apply to your personal situation.
The bottom line: Although many financial rules of thumb come from a good place and solid reasoning, don’t make the mistake of treating them like a scientific theory. Your financial life is often just as unique as you are, so the way you plan for it should be too.