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5 Dangerous Rules of Thumb to Rely on in Retirement

Retirement planning can be overwhelming, especially with so much advice available. While some financial rules of thumb are helpful, others can mislead you. Here are five common guidelines that could derail your retirement plans. The Saving 10 Times Your Income by 67 Rule This rule suggests that by age 67, you should have ten times your income saved for retirement. However, this rule can be misleading because it conflates income with spending. Two people earning the same amount might have very different spending habits and additional income sources, such as pensions. Depending on your unique situation, following this rule could result in either over-saving, leading to unnecessary sacrifices, or under-saving, putting your retirement at risk. Save 10-15% of Your Income Rule The idea of saving 10-15% of your income is another common piece of advice. While saving something is better than nothing, this rule doesn’t consider when you start saving. For example, a 25-year-old and a 55-year-old saving the same percentage of their income will have vastly different outcomes due to the power of compound interest. The 4% Withdrawal Rule This rule suggests you can safely withdraw 4% of your retirement savings each year without running out of money. Although it was groundbreaking when introduced, it has limitations. The rule assumes you’ll retire into the worst-case market scenario. If you retire in a favorable market, you might end up with more money than expected, potentially missing out on opportunities. Conversely, retiring into a market downturn could jeopardize your financial stability. A dynamic approach to withdrawals that considers market conditions and your spending needs is more effective. Average 10% Market Return Assumption While the U.S. stock market has historically averaged a 10% return, relying on this average for retirement planning is risky due to market variability. The sequence of returns can significantly impact your financial security. A downturn early in retirement can cause long-term damage to your portfolio, even if the average return aligns with historical norms. Planning for market volatility and adjusting your strategy accordingly is crucial for a stable retirement. Subtract Your Age from 100 Rule This rule advises that you subtract your age from 100 to determine the percentage of your portfolio in stocks. However, this oversimplifies the complex relationship between risk and time horizon. It assumes stocks are riskier than bonds, leading to a more conservative portfolio as you age. While this reduces short-term volatility, it exposes you to inflation risk. Over a 30-year retirement, inflation can These financial rules of thumb are meant to simplify retirement planning but should not be the sole basis for your strategy. Instead, consider your unique financial situation, spending needs, and market conditions. A personalized approach is often the best way to ensure a secure and fulfilling retirement. ======================= Learn the tips & strategies to get the most out of life with your money. Get started today → https://www.rootfinancialpartners.com/ Get access to the retirement software I use in this video and more → https://retirement-planning-academy.m... 🔔 Make sure to subscribe here to be notified for future videos!    / @rootfp   _ _ 👥 Make sure to connect with us on all socials below → https://beacons.ai/rootfinancialpartners ⏱Timestamps:⏱ 0:00 - Save 10x your income 3:52 - Put 10-15% toward retirement 6:11 - The 4% rule 9:40 - Average stock market return is 10% 11:17 - % of portfolio in stocks 13:33 - The impact of inflation Other videos we think you'll like: About Root:    • Financial advisors with heart.   Worried about retirement? Start here:    • Worried About Retirement..Start With ...