For Mark Roberts’ Use: Retirement planning is a complicated topic, and over the years financial planners have attempted to simplify the process by offering some basic guidelines. So, you might have heard that you should plan to replace 70 percent of your current income to provide for your needs in retirement, or that a good withdrawal rate (from your retirement account) is 4 percent. Or, maybe you’ve read that you should save 10 percent of your current salary in a retirement account.

The important thing to remember is that these general guidelines are indeed general. They don’t apply perfectly to everyone, and aren’t intended to. For the moment, let’s look at how these old “rules” are holding up.

Replacing 70 percent of your income… Might be a good starting point, but there’s more to the story. In fact, many advisors suggest aiming for 80 percent instead. But the better way to look at this issue starts by analyzing your expected expenses in retirement. It only makes sense to plan for 70 percent of your current income if your budget will indeed amount to 70 percent of your current expenses. For some people, expenses might remain the same in retirement, or be even higher. Of course, there’s also the possibility that you plan to downsize your budget considerably.

Withdrawing at a rate of 4 percent… Is often a good, “safe” rate. But it doesn’t apply to everyone. Before making this assumption, analyze other factors such as the value of your retirement savings, your life expectancy, your expected budget, taxes, your marital status, and your expected return on investments. And then there’s the big one: Make sure you’ve considered inflation. Four percent might work well for a lot of people, but it’s not a hard and fast rule that should apply to everyone.

Saving 10 percent of your current salary… Seems like solid advice, but your savings rate should account for when you started preparing for retirement. If you started in your twenties, a 10 percent savings rate will be much more effective than if you procrastinate until your fifties! At that point, you would need to save considerably more. And, of course, your salary and expected retirement budgets are factors that vary from one individual to the next.

The important thing to remember about any guidelines you might hear, is that they are indeed just guidelines. They’re a starting point for those who are unfamiliar to retirement planning, but you still need to tweak these rules, sometimes considerably, before arriving at a retirement strategy that works best for you. For more on that, give us a call and we’ll be happy to help you analyze your individual situation.