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Take It Easy With the Retirement InvestmentsBY: Guest User | Category: Finance | Submitted: 2010-04-06 21:20:17
Planning for your retirement might be tricky. The fear of an uncertain future might easily mislead you to amass what you have and to restrict your present desires. Being non-working and living only from your assets can sound very scary indeed, and even threatening. However, it is important not to let yourself caught by panic at the very thought of it. There are many investing advisors that will use this panic to get their large share of commission by making you buy into as many retirement investments as they can. It is for sure the best thing for them, but is it the best for you as well? Take for instance the 4% spend-down rate that typically is quoted about retirement investments. Supposedly, when retirement comes, you can spend without danger each year at most 4% of your capital. This means that if you retire with $1 million in the bank, you can only spend every year 4% of it, which is $40,000, and add as well a bit for inflation too. This approach assumes for your retirement the same needs as for your active years. When you retire, your children will probably be entirely supporting themselves and will not depend on you anymore. Will you still need as much each year as you did when you were raising them? Rather than considering a fixed 4% rate of spending, you should consider a different spending rate for each year of retirement. During your first retirement years, you will still be relatively young and active. Without any particular burdens, that might be the best time to enjoy some of your money and you could draw as much as 6% of your capital. As time goes by, your needs are likely to decrease and you could get that down to 3% in the following years. Getting back to the $1 million example and applying the classical 4% rule and 3% inflation each year, it would mean that an 80-year old couple needs more than $100,000 a year. How plausible does that sound? High chances are that they will need in fact much less by the time they turn 80. Nevertheless, traditional advice makes them plan retirement investments exactly for this unrealistic need and to do so they have no choice than to limit their spending and plans when they are young. The 4% rule is not the only one that begs to be broken or at least bent a bit. The 75% replacement rule for retirement investments says that you should have now, for each year that you will be retired, 75% of what you make on the last year before you retire. Strictly following this rule is just another way of valuing your youth less than your money. Most of the online retirement investments calculators offer this kind of ill thought-out advice. There are a few exceptions, but what you usually get from most of them is just a version of "throw away whatever you have now, as you are better safe than sorry". Do you really need a serious-looking software tool to give you such advice? Article Source: http://www.writearticles.org/ About Author / Additional Info: Comments on this article: (0 comments so far)
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