Retirement is expensive and difficult to plan for. That’s why so many individuals planning for retirement seek out the advice from the experts. While there is a lot of great advice out there to help you there are some guidelines that have become outdated and are best to steer clear from now. These once “best practices” now won’t help and may even end up costing you down the road.
These are the three rules Fox Business says to steer clear from:
1. The 4% Rule
The 4% rule has been around since the mid-1990s, and it states that you can withdraw 4% of your total savings during the first year of retirement, then adjust your withdrawals each year after to account for inflation.
2. The 70% Rule
Another common guideline is that you’ll need around 70% of your pre-retirement annual income to retire comfortably. So if you’re spending, say, $50,000 per year now, for example, you’d only need around $35,000 per year in retirement. In some cases, this rule of thumb may be accurate. But in other scenarios, you could end up saving far less than you actually need.
3. The debt-free rule
Some experts advise paying off all your debt before you retire, and while that’s not necessarily a bad goal, it could hurt your ability to save. If you only have a limited amount of cash to spare each month and you have to choose between paying off debt and saving for retirement, it’s sometimes better to put that money toward retirement.
The exception is if you’re drowning in high-interest debt, because that type of debt can be incredibly costly. In some cases, you could even end up paying more in interest on your debt than you’re earning on your retirement savings.
Looking for guidance and best practices to help plan for retirement is never a bad thing, just ensure the advice you listen to is current and won’t hurt you in the future.