Some things never change and never go out of fashion. However, this is not the case when it comes to retirement advice. How we retire today looks massively different than how past generations used to retire. Employees now have a broad range of new types of retirement accounts to choose from, and the economy has substantially shifted since people were retiring in the 70s up through even the 90s. If your hope is to retire peacefully and comfortably, then it is critical that you modernize your mindset and avoid any outdated retirement advice. Take a look at these five antique pieces of retirement advice that you should avoid at all costs.
1. 60/40 Split on Portfolio is Both Profitable and Safe
Employees have long been told that a 60/40 split on their portfolio is the best way to go. They were advised that by putting 60 percent of their available funds in stocks and then 40 percent in bonds, they would be guaranteed substantial growth while avoiding unnecessary risk, by securing their assets in low-risk investments. This made sense in the past when you could easily get between 3-5 percent on a bond portfolio. That being said, because of the low-interest environment we are in today, bonds barely accrue any interest. Instead of doing the age-old 60/40, you’ll be better served with an 80/20 to put more money in the stock market. Although some people may be wary of the risk that comes with stocks, they have historically always increased in value over a 10-year length of time.
2. Use Your Age to Determine Your Portfolio
A similarly archaic piece of advice recommends that employees determine how much they should put into stocks and bonds based on their age. With this rule, a 40-year-old would put 40 percent of his or her portfolio towards bonds and 60 towards stocks. However, this is a terrible strategy in this day and age as it does not account for how long people are living. Instead, people should keep more of their money in stocks to earn enough funds to last for at least a 30-year retirement.
3. You Can Remove 4 Percent Out of Retirement Each Year
For a long time, 4 percent was the talked about number when it came to withdrawing money from a retirement account. Retirees were told that removing 4 percent per annum would allow them to spread out their savings for the remainder of their lives. The issue is that in this day and age, retirement funds do not have steady gains every year. Instead of using this approach, a better rule of thumb is to decide on an annual basis how much money is safe to withdraw from your retirement account depending on the current market conditions.
4. Employees Should Be Given Endless Choices
With the creation of IRAs and 401(k) plans, employees were forced to take control of their retirement plans. However, many people have stalled taking action on their retirement planning because of both choice overload and procrastination. Instead of overwhelming employees with planning calculators, resources, and tools, the best thing to do is to turn the modern 401(k) into a plan more similar to the old-fashioned pensions, meaning automated enrollment of employees, as well as automatically upping their contributions. Besides this, it is best to look at retirement planning as investment planning so that employees are encouraged to do adequate research into their choices and make informed decisions.
5. Have $1 Million to Retire in Comfort
This amount of $1 million may seem like a good, round number to try to reach and may sound like an ideal amount of money to live out retirement. However, this outdated rule has a lot wrong with it. For one, $1 million isn’t the substantial sum of money that it used to be. Depending on your location, $1 million may not stretch out to between 25 and 30 years of comfortable retirement. Additionally, some Americans will find $ 1 million impossible to grasp at. Instead, attempt to save 8X the amount of your final yearly income.