Five Rules Of Thumb For Retirement Planning
January 2008
Developing a sound investment plan for your retirement involves time and attention to detail. This fact causes many of us to procrastinate and put off this important financial task. We think, “I’ll do that later when I have more time and a better understanding.”
If this describes you, consider these five rules of thumb for retirement planning. While adequate preparation will eventually require detailed thought and effort, this handful of simple concepts can at least help you get started on building a secure financial future.
Replacement Rule. Thinking about how much money you will need when you retire is a good place to start. To maintain your standard of living in retirement you probably need to replace at least 80% of the income you received in your last year of work.
Social Security Rule. If you think your future Social Security benefit will give you enough to live on, think again. Typical retirees find their monthly benefit check from Uncle Sam provides about one-third of the income they need in retirement.
Contribution Rule. Start investing for retirement by age 30 and a contribution of 10% of your monthly pay could be adequate. Delay investing until later and it will require a contribution of 15% or more of your annual income.
Earnings Rule. Your retirement account will grow as a result of earnings you receive on your investments. Divide the number 72 by your investment return to get an idea of how long it will take your money to double in size. Using this rule, an investment of $50,000 with a 10% rate of return would take 7.2 years to grow to $100,000.
Allocation Rule. Your age should have an impact on your investment allocation. A young investor can focus more on stocks while older investors may want to move toward fixed income investments. Subtract your current age from the number 100 to see how much equity exposure might be appropriate for you. A 40-year-old investor using this rule of thumb would allocate 60% of his or her account in equity holdings.
For more information or help in planning for retirement, please contact a GuideStone customer service representative at 1-888-98-GUIDE (1-888-984-8433) or log on to http://www.GuideStone.org.
Bob Henry is department head of Financial Solutions and Services — Churches GuideStone Financial Resources of the Southern Baptist Convention.
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