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.
(Click the featured times below to jump forward in the episode)
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?
“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.“
Check out some other recent episodes
How can you use your money wisely? Eric answers three questions that range from short-term travel plans to long-term estate planning decisions. While it’s good to be a good steward with your money, remember what it’s really there for.Read More
Are you dreaming of retirement? We talk through the different levels of desire people have in regards to retirement. Some can’t wait to cross the finish line and others have no plans soon to walk away from their jobs and careers. Depending on where your desire lies, here’s what you can be doing to prepare for the future.Read More
Do you think your financial advisor belongs on the naughty list or the nice list this year? Eric talks through a few scenarios that financial advisors may face to set the record straight on whether it is nice or naughty. If you come across a similar situation, hopefully, this will shed some light on reasonable expectations clients should have with their advisors.Read More
In retirement, even if you’ve saved more than you’ll need, there are still a lot of questions that come up as you make wise decisions about what to do with your money. Eric answers three questions from retirees on how to best navigate what they have and how to rest easy in retirement. If ever you have a question for Eric, feel free to reach out!Read More
As we start to close out 2022, what are the things we should be doing with our finances? Is now the time to do a Roth conversion? Depending on your situation, you may want to con-sider it before the ball drops on New Year’s Eve. Eric explains how a Roth conversion works, what the benefits are, and why you’ll want to talk to your advisor about whether you should do one right now.Read More
When people are in retirement or closer to retirement, the accessibility of money goes up. So, what does that mean when you have to take out RMDs? How do you know if you have too much money in the bank? Talking through this with an advisor might help you make the right next steps with your money. We also talk about what mistakes people are prone to make if they try to DIY their retirement planning without a financial advisor.Read More