Today’s Prep:
While financial planning has a lot of numbers involved, here are a few letters and abbreviations you should know, too. Eric explains several common financial abbreviations.
Equipping Points:
You may have heard of at least one if not all of these financial rules, but should you follow them? What do they really mean? On today’s episode of the podcast, we talk through four common rules of thumb when it comes to financial planning and what Eric advises about them.
The Rule of 100 is a planning rule that comes to how much risk you should have in your portfolio. If you subtract your age from 100, the rule goes that’s the amount you have leftover is how much you should have in riskier investments like stocks. But before you assume this rule always applies, it’s important to consider your unique situation. This might be a good conversation starter though with your financial advisor.
The 75 percent rule is a rule a lot of planners use to consider how much of your income you’ll need in retirement. While you’re working, things come out of your check, such as retirement contributions, Medicare, and Social Security. The amount of money you need in retirement might better resemble your net income when working. What does it take for you to live?
The six months savings rule is set to protect you when you’re working in case of job loss or unexpected emergencies. How liquid does this money need to be? Liquidity isn’t only the money in the bank.
What is the 4 percent rule and is it a good one? This was originally designed by a financial advisor, William Bengen, in California in the 1990s. He found that 4 percent should last you about 25 years in retirement. The thing is, will retirement only be 25 years? Morningstar did a review of this to see if it still holds up and at what probability of success. The new rate of withdrawal they came up with was 2.2 percent.
Do you have strategies in place to get you in the income you need and protect it?
Listen to the entire episode or use the timestamps below to skip to a particular rule.
1:51 – What’s the Rule of 100?
3:03 – The 75 percent rule means what?
4:50 – Do you need six months in savings?
8:01 – Should you use the 4 percent rule?
Today’s Takeaway:
“Retirement income: Look at what it takes for you to live–go through a budgeting process first–but also just look at what your take-home pay is and try to build it around that.“
-Eric Peterson
Related Resources:
Financial Abbreviations, Explained
Subscribe To The Podcast:
Apple Podcasts - Google Podcasts - Spotify - Stitcher - iHeartRadio - TuneIn
Check out some other recent episodes
Finding Financial Silver Linings
Throughout our lives, there will be times when the markets rise and times when we experience downturns. Largely, we don’t have control over the circumstances we’re dealt, but we do have control over how we respond to those situations.
Read More
Unasked Retirement Questions You Shouldn’t Ignore
Tune in to this episode with Eric, as he breaks down some frequently unasked retirement questions that are very important to consider.
Read More
The Diverse Definitions Of Diversification
Diversification is one of those buzzwords you hear often in financial planning. While many people know it’s important, few are clear on what it actually means when applied to various aspects of their financial strategy. In today’s episode, Eric and Marc will bring you the diverse definitions of diversification.
Read More
The Use Of Technology In Financial Planning
As technology keeps advancing, it’s made our lives easier in so many ways. Tasks that used to need outside help can now be done on our own with just a few clicks. This shift has also brought more accessible online financial tools, but how accurate and helpful are they really?
Read More
Retirement Planning Conversations With Dorothy Parker
Dorothy Parker is one of the great writers of the 20th century. Her wit and prose have been appreciated by readers for generations. But are there any lessons we can learn when it comes to finance with some of Parker’s most well-known quotes?
Read More
Mailbag: Moving To A State With Income Tax And More
In this episode, Eric is answering your questions! We’ll cover a range of topics today, including key considerations for income taxes when moving to a new state, how to initiate financial conversations with parents or grandparents, and whether using a life insurance policy to save for a college fund is a wise choice.
Read More
What Is Lazy Money?
What is lazy money and why do you want to not have too much of it in your retirement portfolio? Simply put, lazy money is money that isn’t growing as much as it could be. Having your money grow and work for you is a key part of building a solid portfolio, so Eric breaks down some strategies to help get the most out of your money in this episode.
Read More
Retirement Planning Today Is Harder Than It Used To Be
Retirement planning simply isn’t the same as it used to be. From changes in life expectancy, the lack of pensions, and getting caught in the sandwich generation, there’s a lot to keep in mind when putting together your financial plan. Instead of taking advice from others who may have retired in a different era, it’s important to understand what strategy is right for you.
Read More
Social Security Variables That Impact Your Claiming Strategy
After so many years of paying into Social Security, you might feel ready to reap the benefits. But before you get too eager, it’s best to have a thorough understanding of the different variables and how to best leverage them.
Read More
Retirement Real Estate Decisions: Downsizing, Snowbirding, and More
One of the key discussions you may have in retirement is what to do about the house. Should you downsize your home? Pay it off early? Buy a vacation home and become a snow bird? Eric emphasizes the importance of considering not just the financial implications but also the lifestyle changes each of these decisions entail. Weighing out the pros and cons of each decision can highlight what is right for you (which isn’t always the same as what your neighbor is doing).
Read More