What Are the NEW Retirement Rules? 12 Guidelines for Your Financial Security
1. Technology Can Give Everyone the Help They Need
Baby boomers need help figuring out how to retire. This is the first time that masses of people are retiring without a pension. What’s worse? High levels of debt, lack of sufficient savings and a tricky economic climate can make retirement planning seem almost impossible.
And, where are you supposed to get the help you need? Financial advisors can be expensive, can’t always sufficiently answer all of the many questions we need answered and many are focused on wealthier clients.
The solution? Some technology — like high quality retirement calculators, detailed online information and services like robo advisors — can help everyone access the detailed modeling you need to assess where you stand, discover ways to strengthen your finances and make better decisions about your money and when, where and how to retire.
2. Retirement Rule: Plan for Longer and Healthier Lives
Perhaps the best news of a “NEW Retirement” is that you are likely to live significantly longer and healthier than your own parents.
In the 1950s, people retiring at age 65 lived until 78. Today’s retirees can expect an average lifespan of 83 or 84 years – which means that half of you will live even much longer than that.
While it is great that you are living longer, your expanded lifespan means that you need more money for retirement:
- Your retirement savings will need to last longer
- Your overall health-related costs will be higher now than ever before
- You will need to plan for different phases of retirement – each with its own financial requirements
The NewRetirement Retirement Planner lets you see what happens to your finances no matter how long you live. You can easily compare your finances with different goal ages. Find out how much you can spend if you live to your expected longevity. Will you run out of money if you live 10 or 20 years longer than average? Get answers for these scenarios and everything in between.
3. Think Creatively About What You Have and Optimize these Resources
Most of today’s retirees have not saved adequately, but that does not mean that you can’t retire and that you don’t need a retirement plan.
Everyone has resources and an important new retirement rule is that you need to think about using those resources creatively. You likely have savings. However, you can also count on Social Security, the capability to work in some capacity, family and friends, a house, the ability to reduce expenses and much more…
You can make small trade-offs to achieve a secure retirement at any level. Examples of small trade-offs that make a big difference include:
- Delaying the start of their Social Security which could mean an additional 30 percent in monthly income.
- Buying a lifetime annuity or long term care insurance may mean less total savings are required for retirement
- Working longer — even just part time — could be the difference between making ends meet and not.
- Explore passive income opportunities.
- Planning to have a multi-generational household could financially help everyone involved.
- Downsizing or otherwise reducing expenses could mean that you’ll never run out of money.
You won’t know which strategy or set of strategies will work for you unless you try them out. Model these scenarios and others in the NewRetirement Planner.
4. Guarantee Your Own Lifetime Income — Reduce Risks
A big part of new retirement planning rules today is finding ways to guarantee adequate monthly income to cover your monthly expenses – no matter how long you live. Guaranteed lifetime income is an income stream that can never run out – no matter your life span — ideally adjusted for inflation.
In the past, shorter lives meant (among other things) less risk to your retirement financial plan. Without careful planning, today’s longer retirement period and the increased complexity of our financial markets leave your retirement security subject to much more risk. A NEW Retirement is a plan to help maintain your quality of life in the face of: inflation, stock market fluctuations, an unforeseen medical crisis or other big event outside of your control.
Some retirees use annuities and passive income to guarantee adequate lifetime income. Others rely on careful investment schemes like bond ladders, dividend producing stocks or a bucket strategy. Still others reduce their spending to live within very limited means.
5. The New Retirement Age – Work Past the Traditional Retirement Age
Long retirements are a relatively new phenomenon. For most of our history, people either worked until they died or until they physically could not labor any longer. In fact, according to the Bureau of Labor Statistics, there has been an incredibly steep decline of men 65 and over participating in the labor force:
- In 1880 78 percent of men over the age of 65 were working.
- In 2000 only 17.5 percent of men over the age of 65 were working.
While a NEW Retirement still stands for relaxed golden years, you may find that it is necessary to reconsider your own retirement target date or go back to work if you have already retired.
The good news? Working tends to keep you young, engaged and both physically and fiscally fit. There are so many benefits to working.
6. Utilize Your Home Equity
From the 1990s through the 2000s, housing prices rose dramatically. If you owned a house near the beginning of this run up – like many baby boomers – your home equity probably grew tremendously. This housing price appreciation is helping many baby boomers to make retirement viable.
Home equity represents the biggest source of wealth for most households in or nearing retirement. This equity can – in some cases – make up for a lack of savings in your financial profile. To use home equity for retirement expenses, retirees often consider downsizing, cash out refinancing and getting a reverse mortgage — either now or at some point in the future.
However, retirees need to consider carefully how and when they tap their equity. In a NEW Retirement, retirees use their home equity to help make retirement work, but they do so carefully. When thinking about how to tap into home equity for retirement, strive for the following:
- Be holistic and comprehensive – Look at all of your resources and goals and include home equity as part of a larger financial view.
- Promote flexibility – Your plan needs to meet both your long and short-term retirement goals.
- Be prepared for future changes – Financial, health and family needs and risks change as people grow older – your home and home equity should be part of the equation.
When using the NewRetirement Planner you can model different ways you might want to tap into home equity.
7. Plan for Your Own Retirement and Also the Needs of Your Own Parents and Children
Another advantage of longer lives is that multiple generations are living and interacting with each other. Today’s retirees often find themselves caring for themselves, their children and their own parents.
This can be a source of great financial complexity. Retirement rule #7 is that you may need to think of multiple generations. Your retirement plan should include what both older and younger family members might expect or need from you.
You can also consider ways to leverage their resources as well.
8. Think About Different Phases of Retirement — Budget Carefully
Because retirement today lasts so long, you will want to think about budgeting for different phases of retirement. Many retirement planners recommend that people plan on spending 70% of what they spent while working. While this may be accurate overall — it might not be and it certainly will not give you visibility into when you will actually need money.
You will likely have a more accurate and reliable plan if you budget for different phases. At a minimum, you will want to think about 3 phases of retirement:
- When you first retire, you’ll likely spend more than you ever have before.
- Then your expenses will likely wind down as you age.
- Finally, spending will spike as your healthcare needs grow in old age.
You can also create a detailed retirement budget in the retirement planner. A detailed budget has at least 3 distinct benefits:
- More distinct visibility into your financial needs,
- better ability to invest your money for both growth and security, and
- the ability to more accurately predict your tax liability.
9. Go Ahead and Take Some Calculated Risks
It used to be that retirees were advised to avoid most investments that involved risk — especially stocks.
However, retirees today need to figure out how to ensure that their money grows at the pace of inflation — if not faster.
The traditional retirement rule of thumb has been to subtract your age from 100. The difference represents the percentage of stocks you should keep in your portfolio. So, at age 40, 60% of your portfolio should be in stocks and by age 70, only 30% of your portfolio would be in stocks.
But today, that rule may be out of date. Financial planners now recommend that the rule should be 110 or 120 minus your age.
However, rather than that retirement rule, you might be better off creating a custom investment policy statement.
10. Do it Yourself Retirement Planning
Whether you have decided to get investment or financial planning help or not, retirees today are still doing a lot to plan and maintain their own retirement.
If you read about a strategy or get a tip from a financial advisor, go ahead and try out the scenario using your own profile. The NewRetirement Planner makes it easy for you to assess how any single change will impact your finances now and into the future.
11. Plan for Your Emotional, Physical and Social (Not Just Financial) Health
Your finances are important, but your emotional, physical and social wellbeing are probably even more important.
Many of today’s retirees are seeing retirement as a time of growth, adventure and new experiences. However, figuring out your goals for this phase of life can be overwhelming. Here are a few resources to help:
- Prepare for life after retirement: 4 ways to find meaning and purpose
- 120 big ideas for what to do in retirement
- Making your future bigger than your past
12. Ongoing Maintenance of Your Retirement Plan
An often overlooked retirement rule is that you actually need to maintain and update your plan every month (or at least quarterly).
It is not enough to create a retirement plan just once before you retire. Things change and little differences in income, rates of return, spending, inflation and more can have a huge impact on your finances.
The NewRetirement Planner enables you to document and save a very detailed retirement plan. And, it is easy to log in every month or quarter to make updates and discover ways to strengthen your retirement security.