There are a few simple rules of thumb, such as saving 10 times your income by retirement age, although experts recommend using a retirement calculator to get a more accurate picture of your retirement number.
Still, the old rules may no longer apply.
“There’s not necessarily a one-size-fits-all solution,” said Christopher Schreiner, a certified financial planner and chief operating officer of Reston, Virginia-based Mason Investment Advisory Services, ranked 13th on CNBC’s 2021 FA 100 list.
“Spending will always be the most important variable,” he said for retirees. “The perfect investment solution can’t overcome someone spending beyond their means.”
Further, there is a good chance your health-care costs will be higher than expected now, too. Especially if you retire before becoming eligible for Medicare at age 65.
For years, financial advisors have also relied on the so-called 4% rule for retirement income: Retirees can withdraw 4% of their total portfolio every year to live on, while maintaining an account balance large enough to last for 30 years.
However, a longer retirement amid so much economic uncertainty puts that standard to the test as well.
“A 35-year time horizon with interest rates at historic lows could make 4% more challenging,” said Matthew Young, president and CEO of Naples, Florida-based Richard C. Young & Co., ranked No. 5 on CNBC’s FA 100 list. “I tell clients you might want to consider 3%, just in case.
“We just don’t know what type of environment we are going to have in the next 15 years in terms of returns,” Young said.
Even the typical view of asset allocation has changed.
Steven Check, president of Check Capital Management in Costa Mesa, California, which ranked No. 4 on the CNBC FA 100 list, recommends sticking with an 80% allocation to stocks — even an S&P 500 index fund — for someone retiring at age 65. Year to date, the S&P 500 stock index is up 16%, and roughly 30% over the past 12 months.
“This is higher than what you’d normally see recommended, but it would have worked fine historically, and I think it is even more necessary with interest rates so low,” Check said of a portfolio heavily weighted toward stocks and stock funds versus a more traditional retirement portfolio heavily weighted in bonds and cash.
“Projected returns aren’t going to be as good as they were because of stock valuations and bond yields,” he added. “The models that are based on past returns can’t be projected forward.”
Check also recommends a “two-bucket” approach, keeping roughly five years of spending money on hand in stable, liquid assets such as money-market funds and short-term bonds, and the rest invested in stocks for long-term growth.
Even if you spend 4% of your assets in year one (and increase this by 3% each year for inflation), then your money would last 35 years, he said.