Is It Time to Ditch These 5 Retirement ‘Rules’?

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By Lacey Cobb, CFA, CFP®, Director of Advice Solutions


Retirement “rules of thumb” are meant to guide you when you’re unsure of how to begin saving or investing. They can offer a rough target for how much to save for retirement, for example, or provide guidance about the right asset allocation based on your stage of life.

Over the decades, these rules have helped many people, but they have been severely tested in 2020 with wild swings in the market and the economy. And now that this tumultuous year is almost over, it’s a good time to review whether some of the most popular rules still make sense.


1. Withdraw 4% of your nest egg in the first year of retirement, increasing that dollar amount in future years by the annual rate of inflation. 

Four percent is still a good rule of thumb for someone planning for a long retirement, assuming your portfolio is appropriately diversified. If your main concern is depleting your nest egg, running a basic retirement plan that incorporates a Monte Carlo analysis can provide peace of mind. This can help quantify the risk in terms of the probability of meeting retirement spending goals. It is also a good way to monitor progress and stay on track.

An easier option: Personal Capital clients have access to the Smart Withdrawal™ tool that helps an individual tailor a withdrawal rate based on their unique finances and goals.


2. The right percentage of stock in your portfolio is 100 minus your age. 

For a DIY type who is new to investing, this age-old rule is a good starting point because it is a simple way to estimate time horizon. But the reality is, this equation is not sufficient for most people. 

Instead, your asset allocation should be consistent with your risk profile, which means you should consider your willingness, ability and need to take risks. You should customize your allocation based on your goals and whether you’ll be able to stick with it through periods of market volatility.


3. You will need 70% to 80% of your pre-retirement income to live on after you retire.

A better way to determine retirement needs is to look at a percentage of current spending instead of income because people earn, save, and spend very differently. As a guide, we suggest you will need about 85% of current spending in retirement. Spending generally tends to decrease during retirement.

Some recurring bills go away, such as mortgage payments and tuition for the kids, although other expenses such as health care could increase. Also, travel and other activities decline later in retirement. It will vary, but for most people 85% to 100% of current spending is generally a good target.


4. You need 8 to 10 times your ending salary saved by the time you retire in your mid-60s. 

Everyone wants to know the magic number: The amount of money needed to retire.

Unfortunately, there is no one-size-fits-all rule because it depends on your personal financial goals. Running a customized retirement plan that models out spending targets will give a better  gauge of how much money you will need to save by retirement. Thinking in salary terms is less useful because it only looks at the top line without considering the underlying mechanisms related to cashflow analysis and planning. 

This is an outdated rule that can be tossed out now that financial planning tools are readily available to everyone at little to no cost.

  • Check out all of Personal Capital’s free online financial tools here


5. Save 10% of your gross income each year for retirement.

Nowadays, 15% is the new 10%. This includes any employer match, making it easier to achieve. 

If you start early, saving 15% of gross pay each year should put you on target for retirement. However, if you’re getting a late start, you’ll likely need to boost your savings rate even more to make up for lost time.

For many, the first step is to contribute enough to a workplace retirement plan to get the full employer match — that’s free money. After that, if you have high-interest debt, such as credit cards, consider eliminating it before squirreling away more for retirement. Once that debt is erased, increase your contributions to your retirement plan. You can do so all at once or gradually raise your contribution by, say, 2 percentage points a year until you reach your target savings rate. 

The bottom line: The earlier you start saving and investing, the less you have to save — and the sooner you can retire. Find out if you’re on target to meet your retirement goals with Personal Capital’s free Retirement Planner tool.


Personal Capital offers free online financial tools, a mobile app, an FDIC-insured cash account, Private Client services, Socially Responsible Investing strategies, and other personal wealth management services. Learn more at

The information and content provided herein is general in nature and is for informational purposes only. 

Advisory services are offered for a fee by Personal Capital Advisors Corporation (“PCAC”), a registered investment adviser with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Investing involves risk. Past performance is not indicative of future returns. You may lose money. PCAC is a wholly owned subsidiary of Personal Capital Corporation (“PCC”), an Empower company. PCC is a wholly owned subsidiary of Empower Holdings, LLC. © 2020 Personal Capital Corporation. All rights reserved.

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