ONE HALLOWEEN, SOME of my teenage buddies and I were having a great time throwing water balloons at trick-or-treaters. It was a lot of fun—until we got caught. After getting hauled down to the police station for a lecture, and then receiving another one when I got home, I’ve been pretty much on the straight and narrow ever since, including when it comes to money.
Over the years, I’ve discovered various tried-and-true rules of investing and those have been the keys to my success.
IT’S SCARY TO RETIRE with a pool of money, knowing how you handle it determines your financial security for the next 25 years or so. It must seem even scarier to everyday Americans who don’t think they can count on Social Security.
A recent Tweet caught my eye. It linked to an article about the problems with the so-called 4% rule. As you might recall, the 4% rule states that, if you withdraw 4% of your portfolio’s value in the first year of retirement and thereafter step up the dollar amount withdrawn with inflation,
YOU KNOW THOSE timeless financial principles? Sometimes they don’t age so well.
Since I started writing about money in 1985, all kinds of financial principles have gone out the window—and that’s continued right up until 2020. Indeed, if you’re still hewing to the financial wisdom of the 1980s, you’re likely hurting yourself today. Here are four examples:
1. Goodbye, Peter. In the late 1980s, America’s most celebrated fund manager was Fidelity Magellan’s Peter Lynch.
IT’S YEARS LIKE THIS that can greatly improve our chances of a comfortable retirement—if we play our cards right. Indeed, thanks to recent rule changes enacted in Washington, there’s a slew of ways to bolster our finances.
What steps should you be taking? Here are seven things to do—and not do—with your retirement accounts right now:
1. Don’t take your RMD. As part of this year’s CARES Act relief package, individuals don’t have to take required minimum distributions (RMDs) from their IRAs or employer-sponsored retirement plans.
THE MOST POPULAR retirement income strategy is built around the so-called 4% rule. Three-quarters of financial advisors say they use some variation on this approach. But is it safe?
The 4% rule specifies that you withdraw 4% of your nest egg’s value in the first year of retirement. Thereafter, you increase the dollar amount withdrawn each year at the inflation rate. Based on historical U.S. stock and bond returns, that strategy should carry you safely through a 30-year retirement.
I AM AGE 57 AND I’M planning to move, so you might imagine I’d be interested in the best states to retire. On that score, there’s plenty of advice available.
Bankrate says the best option for retirees is Nebraska, followed by Iowa, Missouri, South Dakota and Florida. Meanwhile, WalletHub gives the nod to Florida, with Colorado, New Hampshire, Utah and Wyoming rounding out the top five. Want a third opinion? Blacktower Financial Management puts Iowa at No.
WHEN POLITICAL parties set aside partisan bickering and agree on an issue, it’s worth taking note. Such was the case last week when the House of Representatives voted 417–3 in favor of a bill known as the SECURE Act. This legislation would represent the most significant set of changes to retirement rules in more than a decade.
Why the sudden bipartisan cooperation? For better or worse, both parties recognize that a growing number of Americans face a retirement crisis.
FOLKS USED TO SAY, “You can’t go wrong with real estate.” They sure don’t say that anymore. It’s been a rollercoaster dozen years for home prices—and some experts think another rough patch is in the offing.
Since mid-2006, the S&P CoreLogic Case-Shiller U.S. National Home Price Index first tumbled 27.4% and then bounced back 53.6%, for a cumulative 12-plus year gain of 11.5%, equal to 0.9% a year. Could we be facing another dip?
JORDAN PETERSON, a Canadian clinical psychologist and professor at the University of Toronto, has thundered onto the cultural scene, thanks in large part to his book 12 Rules for Life: An Antidote to Chaos. I began reading with healthy skepticism, but quickly became a fan.
Not that the doctor and I agree on all points. But the book immediately confronted my intellectual laziness in a careful but unavoidable way.
LOOKING TO IMPROVE your money management? Here are 31 rules for the financial road ahead:
1. Check your retirement progress by taking your nest egg and applying a 4% annual portfolio withdrawal rate, equal to $4,000 a year for every $100,000 saved. Will you have enough retirement income—or should you be saving more?
2. Don’t automatically claim Social Security at age 62. It often makes sense to delay benefits so you get a larger monthly check,
BY THE LATE 1990s, with almost two decades of robust investment returns under their belts, investors would talk about 6%, 8% and even 10% as a reasonable rate at which to draw down a retirement portfolio. But researchers begged to disagree—and the financial markets provided brutal confirmation, hitting stock investors with back-to-back bear markets in 2000–02 and 2007–09.
Today, 4% is considered a safe withdrawal rate (though even that number has been called into question).
ONE RULE OF THUMB suggests that, to retire in comfort, you need 80% of your preretirement income. Why the 20% drop? You are no longer saving 10% or so every year toward retirement and you’re no longer making an employee’s 7.65% payroll-tax contribution to Social Security and Medicare. In addition, you won’t have to buy work clothes or pay commuting costs. Your income tax bill should also go down, in part because a portion of your retirement income will likely come from Social Security benefits,
HOW LONG WILL IT take to double your money, given a particular rate of return? You can get a rough answer by dividing 72 by the annual return. For instance, if you expect to earn 7% a year, it would take just over 10 years to double your money. But at a 3% annual return, the compounding process is much slower, with your money doubling every 24 years.
Obviously, the higher the return you earn,
31 Rules of the Road
Below is a modestly revised version of the Jonathan Clements Money Guide 2015‘s final chapter.
Looking to improve your money management? Here are 31 rules for the financial road ahead:
1. Check your retirement progress by taking your nest egg and applying a 4 percent annual portfolio withdrawal rate, equal to $4,000 a year for every $100,000 saved. Will you have enough retirement income—or should you be saving more?
MOST OF US STRUGGLE with self-control. We eat too much, exercise too little and spend excessively. One solution: Adopt rigid rules of behavior.
For instance, I make it a rule to exercise every morning for at least 40 minutes, always buy whole wheat bread, avoid caffeine after 9 a.m. and eat fruit as a midmorning snack. I’ve followed these rules for so long that they’re no longer rules, but rather ingrained, unquestioned habits.