It's Time to Challenge These 4 "Old Rules" About Saving for Retirement. Do You Agree?

Professionals often continue to talk to their clients about certain tried-and-true "rules" about retirement that may no longer work in the future. 

Here's a great example: "Save $1 million for retirement." As you probably know by now, that figure doesn't encompass the correct amount for every single retired or someday-retired person in America. Some retirees can get by on less and many others need more than that amount. 

When asked in a Fidelity survey whether Americans had a financial plan in place for retirement, only 18% have a documented plan. (Despite the fact that 54% of survey respondents self-describe as "planners.")

So, what other "rules" have you heard and questioned? Let's walk through a few old rules about retirement and how you might want to rethink and reinvent your future.

Old Rule 1: You should save 10 times your income for retirement.

Experts have long moved on from the "save $1 million to set yourself up for retirement" and moved onto another: Save 10 times your income by retirement age. A retirement calculator, your spending habits, your activities, lifestyle and where you retire might say something completely different when it comes to that "magical number." 

Ten times your income offers a guideline, but that can have a lot of variables, including the age you plan to retire. 

Here's a long-held suggestion: 

• Age 30: Save one time your annual salary.
• Age 40: Save three times your annual salary.
• Age 50: Save six times your annual salary.
• Age 60: Save eight times your annual salary.
• Age 67: Save 10 times your annual salary.

Take this into consideration: What if you plan to delay your retirement until age 70? You might not have to have 10 times your annual salary saved up at age 67. 

Or, what if you plan to retire at age 60? You might have to have something in the range of 12 times your annual salary saved up instead.

Old Rule 2: Tap 4% of retirement savings each year of retirement.

You may have heard the guideline of taking out 4% of your retirement savings each year from your 401(k), 403(b), Roth IRA, traditional IRA or wherever you've stashed your retirement money. Does that always ring true?

Well, a longer retirement timeline can wreak havoc on that 4% withdrawal schedule, particularly if you plan to withdraw more each year to combat inflation. 

People have begun living longer. Global life expectancy at birth now tops years for men and 75 years for women. Experts predict that the number of people living to 100 will grow to nearly 3.7 million by 2050 — up from 95,000 in 1990. 

There's a good chance you could be in that group of super-agers. In that case, longevity, combined with a possible less-than-stellar economy means that saving 4% just wouldn’t be enough. Factor in the cost of living (gosh, it's high, and getting higher!) and you may need to look at a different final number. 

What will living to 100 mean for the amount you've saved? What would withdrawing 3% instead of 4% do for you?

Old Rule 3: Stick to bonds when you get close to retirement age.

Financial advice runs the gamut from investing in a tiny sliver of stocks in your portfolio to a slightly more generous amount. For example, let's say you're 50 right now. Your advisor may suggest that you keep 70% of your portfolio in stocks, then retire at age 60 with 60% of that nest egg in stocks. You might reduce your allocation to 65% by age 55 and then to 60% by age 60.

Knowing the possible longevity of many in retirement, you could easily invest further in stocks and have more than 30-plus years to invest and let the Rule of 72 take hold. As long as you have enough money in readily accessible accounts like fixed income and cash to give you much-needed stability, you could argue that you should put the bulk of it in stocks, particularly if you won't need the money to live off of in the immediate future.

Ultimately, it comes down to this: Your allocation should depend on your cash flow needs and retirement goals. 

Old Rule 4: Health care costs won't clean you out.

So, this doesn't really mean that financial advisors have gone around saying, "Ah, you won't spend anything at all on health care." 

However, your financial advisor may not have spent a lot of time parsing out exactly how much you'll spend on health care. In fact, they might completely gloss over it in your yearly financial checkup. 

If you manage your own savings, you might not focus much on it at all. The fact of the matter is that health care costs have gone up over the past few years, and it's not slowing down. 

Of the individuals surveyed about health care through a Fidelity survey, 37% thought they'd spend between $50,00 and $100,000 on health care in retirement as a couple. The survey says that the real number amounts to about $295,000 for a couple. 

What will happen in the future? Even with Medicare and supplemental insurance, the trend will more than likely continue. Health care will continue to get more expensive. It's a good idea not to gloss over this issue when saving on your own for retirement or talking with a financial advisor about your retirement goals.

Banish Outdated Ideas so They Don't Become Mistakes

It seems that no matter how hard you try to shake them, certain old rules stick around, kind of like old wives' tales. Run the 4% withdrawal guideline against "not swimming until 30 minutes after you eat" and it may give you a whole new perspective. 

As we get savvier about investing and saving and projecting for aging into 100, it's good to take note of more nuanced advice. Otherwise, sticking with outdated tips can hurt your nest egg in the long run.