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Could the old rules of retirement no longer apply?

An early retirement can be enticing, but make sure you plan ahead and avoid pitfalls which can cost you later.

We all dream of a nice nest egg for retirement, but how do you make your savings stretch once you are there?

We've been told that there are some simple rules to follow in the golden years. But in the "new normal," do those rules still apply? David Blanchett, head of investment research at Morningstar Investment Management, says the first rule you should question is the 4 percent rule. That is, the idea that when you retire, withdraw 4 percent from your 401k every year … and then increase that by inflation.

So does it still apply? "The problem is the four percent rule is kinda based on a couple both aged 65 and it doesn’t really apply to someone who is single and age 65 and married couple who is 75."

"It’s a good starting point, but it’s not very realistic for every type of retiree."

What about income?

Things like the four percent rule provide a better insight on how much you need to save for retirement, not how much you withdraw, for instance.

“Whatever income need you have to create that’s not covered by things like a pension or social security, you need about 20 to 25 times that income amount when you actually retire.”

But even that, it comes down to your spending.  A 65-year old might not spend like an 80-year old.

About the author

Carmen Wong Ulrich is the former host of Marketplace Money, APM’s weekend personal finance program.
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The 4% Rule is one of the things that personal financial planners talk about that just irks me. The rule only applies to taxable savings and is useful only if the returrn on those taxable savings eceeds 4%. Given that retirement is a 25 to 35 year period for most of us, we are likely to see periods of maket losses, making the 4% Rule unreliable and likely to result in erosion of principle. Besides that, retirement savings for the majority of us consist of mostly or entirely of deferred savings (401 Ks, IRAs, etc.). As such they are subject to RMD payments. Since the RMD quickly exceeds 4% the 4% Rule can not be used on deferred savings. Instead of using gimicks like the 4% Rule retirees should use guarenteed sources of income like pensions (if available), Social Security and annuities to cover basic costs.

How long your savings will last will depend on how well you planned and the lifestyle you choose to lead. Start saving/investing early in life, be consistent, take advantage of any employer matching plan, max out contributions when possible, eliminate debt, avoid risks with your nest egg and plan for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.).There are many retirement sites that provide retirement information. I recently found the site Retirement And Good Living that offers information on finances, health, retirement locations and more. It also has a great blog of guest posts about a variety of retirement topics.

Another factor to consider is employing an active investment management strategy. The Federal Reserve has already begun tapering its Quantitative Easing program. With the stock market at all time highs, and the latest quarterly earnings coming in average to poor, intelligent investors that don't want to be left holding the bag in their retirement accounts should look into investing tactically. It is easily accomplished in most 401k's, 403b's, and 457.

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