October is Financial Planning Month, and today is October 4, 2020, numerically represented as 10/4. When you hear the phrase “10-4,” you might be reminded of radio communications, and it means “understood” or “affirmative.” Perhaps you have even heard to the phrase “10-4, over and out” in a movie or radio show. But 10 and 4 are also significant numbers as it relates to retirement planning. These two numbers represent two rules of thumb for retirement planning.
First, the number 10 represents a guideline to save at least 10% of your income. Studies show that if you can save 10% of your income, you dramatically improve the probability of you being able to accumulate enough assets for retirement. Of course, there are no guarantees, and you should always do comprehensive planning to find exactly how much to save, but 10% is a great start.
The second rule of thumb for retirement planning deals with taking out money when you are retired. Once you’ve accumulated all those funds for retirement, you will need to start taking some out to enjoy your retirement. In doing so, you want to be mindful of how much to redeem each year. Studies have shown — and again, this is a rule of thumb — that a distribution rate not exceeding 4% has a 95% chance of lasting throughout one’s retirement years[1]. So, remember, save 10% and don’t take out more than 4%, and you’re on your way to increasing the odds of having enough funds for retirement.
If you would like to learn about more financial planning strategies, you may download our free e-book here: https://www.coddingtonwealthadvisors.com/on-track-for-retirement
Until next time, “10-4, over and out.”
[1] https://thepoorswiss.com/trinity-study/