Rules of thumb don’t apply to retirement

  • In retirement, you need from 70 percent to 80 percent of your pre-retirement income to live comfortably.
  • Your portfolio in retirement should be designed to generate income from interest and dividends.
  • The older you are, the more conservative your investments should be.
  • To figure out what percentage of your portfolio should be in stocks, take 100 and subtract your age from it.

These widely repeated rules of thumb can make sense for some people, but they don’t make sense for all. Blindly following them without taking into account your particular circumstances and goals is naive at best.
At worst, this one-size-fits-all, rule-of thumb advice can do great harm to your financial well-being in retirement. Another highly risky practice is following, without any critical thought, the boilerplate asset-allocation recommendations that so many free and oversimplified online retirement calculators dish out these days.

“It is a good way to educate yourself about the process,” said Harold Evensky, an internationally known certified financial planner from South Florida. “But it is not a wise way to plan the rest of your life.”

Retirement planning, he said, “is way too complex to use rules of thumb.”

That is our dilemma as writers. Part of our job is to make complex topics understandable, and readers crave for rules of thumb. So the temptation to use them is great, considering our limited space. But doing so would be irresponsible because rules of thumb cannot adequately answer a question such as, “How do I make sure my money provides an adequate income for the rest of my life?”

An answer, to be really thorough, would require a book.

Such a book in fact, the 370-page hardback “Retirement Income Redesigned” edited by Evensky and partner Deena Katz, prompted this column.

We are not recommending this book to the general public. Aside from the $65 cost, it is designed for financial professionals. The book’s 20 chapters, each written by one or more leading figures in a field, cover a wide range of topics from how much can be safely withdrawn from a retirement portfolio each year to the proper role of reverse mortgages and insurance products, including different types of annuities and life insurance.

Clearly, the content of 370 pages cannot be boiled down in a 700-word column. But, as a periodic series of articles, we plan to delve into many of these topics in future columns. For today, we want to challenge the four rules of thumb we cited earlier.

For many people, “the idea that you will spend less in retirement is an unrealistic expectation,” said Katz, former editor of the Journal of Retirement Planning. True, work-related expenses may decrease and the mortgage may be paid off, but you’ll have more time to travel, pursue hobbies that cost money and visit and spoil the grandchildren. Unfortunately, health-related expenses may also go up.

As to relying solely on interest and dividends for income, “that works very well for people who have lots of money” and can leave the principal untouched and still keep up with inflation, Katz said. But most of us who are not superrich will need a retirement portfolio that aims for total return.

As to proper asset allocation, or how aggressive or conservative your investments should be, you need to take into account many factors, not just your age. Here are just a few: your savings and whether you are receiving any steady income, such as a pension; your ability, willingness and need to take risk, which are three different things; your tax situation, and your desire, if any, to leave an inheritance.

Humberto and Georgina Cruz are a husband-and-wife writing team who work together in this column. Send questions and comments to or