Ep 54: Five Outdated Financial Strategies

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The Concept:

Just like technologies change and become outdated, so do some retirement planning strategies. Let’s look at five financial strategies that have become obsolete.

The Reality of the Matter:

On this episode of the Retirement Reality Podcast, Mike Kojonen looks at five financial strategies that have become obsolete over the years.

The 4% rule

An old rule of thumb was you could take 4% out of your investment portfolio every year and not worry about running out of money.

This has changed over the years because today’s market isn’t what it used to be 30 or 40 years ago. It used to be the 5% rule, then 4.5% and now down to 4%.

The 10/5/3 rule

The old rule said you should expect a 10% return from stocks, 5% return on bonds and 3% return on cash. But those are some obsolete numbers, and we know they are not accurate in today’s economy.

Twenty year ago, you could get a five-year CD at 7% or 10%, but those numbers aren’t around anymore.

Move money from stocks to bonds as you get older

A lot of people still stick to this rule, but bonds aren’t what they used to be. We just had a 40-year bull run on bonds, which peaked in 1981. But bonds are not safe because they can lose when interest rates go up.

$1 million retirement target

A common goal was for everyone to save $1 million for retirement. Everybody thought $1 million was going to be worth so much more.

You might need $2 million or way less. Everybody’s situation is different and can depend on whether you have a pension and Social Security.

You’ll need less money in retirement

Typically, this is not the case. Most people end up spending the same amount or more when they retire. As long as you have a plan for how much money you’ll need in retirement and how you’ll spend it, that will give you some peace.

Listen to the full episode or use the timestamps below to find a specific segment, including a mailbag question from a listener.

2:34 – 4% rule

4:00 – 10/5/3 rule

7:10 – as you get older, move money from stocks to bonds

9:37 – $1 million retirement target

12:17 – you’ll need less money in retirement

15:11 – Mailbag: Should I invest differently based on the election?

Thanks for checking out the Retirement Reality Podcast. We’ll talk to you again next week.

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