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Old Retirement-Planning Rules Get Updated

retirement savings plan
retirement savings plan

Some longstanding rules of thumb for having a financially secure retirement are now getting a thumb’s down from investment advisors, according to a recent story on the website of the American Association of Retired Persons.

“Financial rules of thumb can be handy, but not if they’re outdated,” the article begins. Click here for full article.

For example, the first of five rules examined by experts is that old standby that people should save 10 percent of their income for retirement.

“This may have worked decades ago, when workers had pensions and shorter life expectancies,” the story by Eileen Ambrose states. “Today, 15 is the new 10. Workers should save at least 15 percent of their gross income, which includes any employer 401(k) match, to maintain their lifestyle in retirement, says Stuart Ritter, a senior financial planner at T. Rowe Price in Baltimore.”

“If you have not saved anything, however, the older you are, the more above 15 percent you need to go,” Ritter was quoted as saying.

It remains the case, the experts told AARP, that it’s wise to keep three to six months worth of living expenses in a special savings account to cover emergencies.

The experts said it also is still true that those approaching the end of their careers “should have 10 to 12 times your final salary in savings.”

“Along with Social Security, this should be enough to generate 70 to 80 percent of preretirement income for most people, says Charlie Farrell, chief executive of Denver-based Northstar Investment Advisors,” Ambrose wrote.

That 70 to 80 percent of income prior to retirement also remains what annual retirement income should be.

Finally, one other view gets a thumb’s down, and that is people should subtract their age from 100 to determine how much they should hold in stocks.

“Under this old rule, 55-year-olds should have 45 percent of their investments in the stock market,” the story stated. “That’s too conservative, financial planners say, given that people are living much longer and will need the growth that stocks can provide for both keeping up with inflation and not running out of money. A better guide: Subtract your age from 120.”

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