Retirement Rules

Retirement rules to live or die by.

I am sure many of you have heard some of all of these words of wisdom.

• Save at least a million dollars before you try to retire
• Only spend 4% of your retirement money every year to make it last 25 years
• Work until age 70 to maximize social security
• Pay off your mortgage before you quit working
• Don’t put any money in risky investments after retirement

If we knew our expiration date some of these things might make sense. If we were going to live until 95 and remain healthy enough to do anything we want we could have a plan that fits that life. Sadly, we don’t know our life expectancy or how long we will be able to remain active. I have always said live for today, just in case tomorrow doesn’t come.

First there is no rule for how or when you should retire. Everyone has a unique situation: one size does not fit all. 

If someone tells you that you need to have $1 million in your retirement account before you stop working you may decide that can’t be accomplished and decide that you will just work until you die. Hopefully, some company will let you continue to work after you reach retirement age. I think this advice comes from investment advisors who charge a fee on the money you invest.

Mayber you have $1 million dollars saved but you only spend 4% or $40k per year to make it last but then you die in your 70’s before you get to spend it. Hopefully your beneficiaries will enjoy it. This advice is likely from someone hoping for an inheritance.

Maybe you decide to work until 70 and then collect the maximum social security benefit. Again, hopefully you live well into your 80’s for that strategy to pay off. This advice is certainly from the people in charge of the social security fund.

Want to pay off your mortgage? Can you pay it off with cash?  If you can’t pay it off with cash,  you might have to take a lump sum from your retirement account and pay taxes on those funds. If you use this strategy, you may not be able to use the value of your home to buy groceries or maintain the home. In the future you may have to take out a home equity loan or a reverse mortgage for cash. Keeping the money in your retirement account and making a mortgage payment may have been wiser. If you have a mortgage with a 4 or 5 percent interest rate your investments might earn more. 

Does the stock market scare you after retirement? Certainly you should have some money in cash or maybe CD’s. However, if you plan on living for many years the stock market can help you stay ahead of inflation. Don’t risk any money you need for today. Stay invested with money you are saving for the future. A million dollars in 2025 won’t be worth a million dollars in 2045.

Here are some of my suggestions.

• Make a plan even if the plan changes it is better than nothing
• Decide what makes you happy and do that first. Happy and poor beats rich and sad.
• Hate your job? Volunteer or work part-time doing something you enjoy
• Have a budget so that you can live within your means
• Save money for experiences not stuff
• Keep investing even in retirement
• Talk to someone about your retirement plan

Call me to discuss your plan. Hopefully you have a plan. If not, I would love to help you create a plan that fits your lifestyle. I am an Investment Advisor Representative (IAR) not a Certified Financial Planner (CFP). Therefore I don't charge a fee for my advice as I truly like helping people with their finances. If you decide to invest with me that is great but not a requirement.