Monday, July 9, 2012

Rule of Thumb: A Good Way to Make Nonessential Estimates BUT a Terrible Way to Plan Your Retirement

Rule of Thumb: A good way to make nonessential estimates but a terrible way to plan your retirement

How much income, as compared to today would you need in retirement? I know, I know. That’s such a basic question. But if that’s the case, then why do the vast majority of Americans think they’re doing fine until they actually retire? The simple answer: most get this figure all wrong!

To understand how it happens, let’s explore how most folks answer this seemingly simple question: They follow the “rule of thumb,” which in this particular instance says something to the effect of: “You’ll probably only need about 70, 75, 80, 85, 88 or some other percentage of your pre-retirement income.”
Now, as you may or may not know, a rule of thumb is any broadly applied principle for calculating a value or making a determination that is NOT intended to be strictly accurate or reliable in every situation. For instance, the rule of thumb is that a two-year-old child will double his height as an adult. This may be fine for guessing at nonessential questions, but it’s not the surest way of planning for a huge – and inevitable – life change, is it?
That’s why if I were planning for a wonderful, peaceful, and financially stress-free retirement, I’d follow a more realistic approach – like this one:
  • First, make a list of your present expenses.
  • Then ask yourself this question: If you were retired today (as in right this moment) what sorts of things would you want to be doing? What kind of lifestyle do you envision?
  • To keep things really simple, don’t even bother trying to figure out what the prices will be down the road – use today’s costs.
  • Next, record your answers and the price tags attached to each of them.
You don’t have to be a math wizard – or even enjoy math – to see the value in this exercise. All you need is a pad and pencil to realize that if you intend to do anything other than sit in front of your TV all day, every day, the rule of thumb is just setting you up for a nasty surprise. Here’s another thing you might find insightful. Have a chat with a few retired folks about the relationship between their pre-and-post-retirement income and find out whether any rule of thumb worked for them.
This stab-in-the-dark method of retirement planning might be working quite well for some people. However, I’ve not yet been fortunate enough to meet anyone in that category over the nearly two decades I’ve been in this line of work. So do me a favor, and please let me know when you meet one.

Contact a professional at Laser Financial Group to set up your complimentary, no-obligation consultation and get your questions answered so that you can start planning your surprise-free retirement TODAY! 877.656.9111 or

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