The Rules of Retirement – And Why They Might Not Apply to You

The Rules of Retirement - Quicken Loans Zing Blog Retirement is a scary territory when it comes to finances. I’m only 21 and I’m terrified of retiring. When I retire, I’d like to have loads of extra cash so that I’ll be the grandkids’ favorite grandma. I want to be able to spoil them with expensive toys, and lavish cash gifts for birthdays and graduation. I would also like to spend at least two months out of the year on a cruise ship, somewhere in the Bahamas.

Now whether this will be my reality remains to be seen. Currently, I’m banking on winning the lottery to be able to afford my dream lifestyle. (You know, there were recently two Powerball winners in Michigan!) If I don’t hit the lottery, who knows? I guess I’d better start saving.

It’s not easy to calculate how much money you’ll need. There are so many different rules and schools of thought when it comes to retirement funds, social security, and savings. U.S. News had a great article about retirement rules that you should avoid. Everyone has different circumstances to consider when saving for life after working years. Here are some common rules about retirement saving that might not apply to you.

You should save $1 million to retire.

Why it’s wrong: As easy as it might be to pick one or even two million dollars as your savings goal, it might not necessarily be the right amount for you. Why? There’s no specific number you need to focus on when making retirement plans. Since I’m planning on living my life on a cruise ship until I’m 105, $1 million just won’t cut it.

What you can do instead: Figure out how much money you will need on a monthly basis. Do you live really frugally? Are you planning to keep up a big house and go on vacations? Calculate expected monthly costs, and figure out a way to secure enough funds on a monthly basis, whether it is through savings, or a source of income, or both.

Withdrawing 4% from your retirement accounts won’t hurt.

Why it’s wrong: People believe that only withdrawing that amount of money will allow you to beat inflation, and not tap into your principal funds. This could hurt you if you don’t have the right market conditions. If the market is down, you risk diminishing your savings. If the market is up, you probably have the opportunity to take out a little more.

What you can do instead: Pay attention to the market, consider your individual needs, and adjust your withdrawal rate accordingly.

Life expectancy is about 78 years.

Why it’s wrong: Well, this one is pretty obvious. If you only allocate enough savings to live for 13 years past retirement age, you’ll be screwed.

What you can do instead: Don’t underestimate your own life expectancy. Americans are living longer and longer. Who knows, maybe by the time I’m old enough to retire, (the year 2056, yeesh!) we’ll be living until we’re 120! Instead of saving for 20 years, save for 30, or even 40. Imagine that you’ll live to be 100. You don’t want to live the last two decades of your life completely broke.

I’ve brought up this point before, but I think it’s an important one to emphasize: you’re never too young to start saving for retirement. Yes, you might be at a point in your life where money is tight, but you don’t want to keep putting off saving for retirement until it’s too late. Take a look at where you can cut back, and make the necessary changes. If you can’t cut back, consider getting a part-time job. Working hard now will pay off later, and that’s a fact!

 

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