Retirement might seem far away, but it’s closer than you think. Each day brings you one step closer to leaving the workforce forever. It’s important to keep this in mind, so you can prepare appropriately. One way to make sure you’re prepared is to avoid following hard-and-fast retirement rules. Not all rules apply to everyone, and some rules and assumptions are simply outdated. Here are 10 retirement rules and assumptions that definitely do not apply anymore.
1. I won’t outlive my money if I withdraw 4% a year
When deciding how much to spend each year during your retirement, financial experts generally recommend the 4% rule. This means you withdraw 4% from your portfolio during the first year of your retirement and then gradually adjust your withdrawals each year based on inflation and current market conditions. This rule does not work for everyone, particularly if your portfolio contains more high-risk investments than your average index funds and bonds.
In addition, life has a strange way of ruining your plans. Anything could happen that might give you no other choice but to withdraw more than your planned 4%. This is even more of a possibility if your emergency savings account is lacking or nonexistent. Life expectancy also plays a role, especially because people are living longer these days. Have a back-up plan for your back-up plan, and make sure you continue to fund your emergency savings. Treat the 4% rule as a general guideline, and always prepare for the worst.