7 Retirement Rules to Live By

17970175_sThere are retirements that just happen and that can be good or rather difficult. Then there are retirements that you have carefully made decisions about. These stand a much greater chance of being comfortable and enjoyable. When it comes to the critical matter of planning for your future, here are seven retirement rules to live by.

Have a plan

The most important thing to do is to have a good plan, and to execute it. Grab a pad and pen and perhaps a calculator. Are your savings on track? How big does your nest egg need to be and will it reach that size on schedule? How will you accumulate as much as you need to?

This simple online calculator can help with your planning. It’s meant to calculate interest, but you can swap in your expected investment growth rate for the interest rate, and then try out different savings levels. For example, if you start with $0, sock away $7,500 per year, and expect it to grow by 8% annually, on average, over 25 years, you’ll end up with about $592,000. Try different scenarios that are realistic for you.

You might want to consider an immediate annuity (as opposed to a variable or indexed annuity) as part of your plan, to provide relatively guaranteed income. Dividend-paying stocks can be another great source of income. A portfolio with $250,000 in dividend payers with an average yield of 4% will generate $10,000 per year. That sum is likely to rise over time, too, as the underlying companies increase their payouts.


Make your money last

Once you enter retirement, your nest egg (along with Social Security and any other income stream) will have to sustain you for the rest of your life. How much of it will you withdraw each year? A general rule of thumb is that withdrawing 4% of it in your first year of retirement and then adjusting the annual withdrawal for inflation after that is very likely to make your money last about 30 years, if it’s split between stocks and bonds. But that rule isn’t a guarantee and its usefulness depends on a variety of factors, such as market performance. Instead of following the rule closely, perhaps use it as a rough guide and withdraw more in years when the market surges and less when it swoons. Perhaps use 3.5% instead of 4% to be more conservative — after all, your retirement might be longer than 30 years!


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