The old rules don't apply

I have talked about the three stages of retirement and what that means for health and lifestyle. I have not talked about how these stages impact you financially. When retirement planning the rule of thumb is you should expect to live about 70% of your pre-retirement income. Between the ages of 60 to 70, you will spend more. Some people will spend up to as high as 110% of pre-retirement spending. They are travelling, collecting the newest toys or expanding the amount of aid they give to loved ones.

Between the ages of 75 to age 85, we spend less. For some of us, our costs may drop to 80% of pre-retirement income or less after the first spouse's death. This means we are living on about 20 to 30% of what we earned when we were working. Between the ages of 85 and 95, our costs may be lower or higher than 70% of our pre-retirement income. The amount we spend is linked to our health. If we are healthy, we spend less than if we need more health care. This seems like common sense, but many of us do not recognize this and that can cause some stress for many.

And then there is inflation which over time averages between 2 and 4%. This means that our spending power goes down by this amount every year unless we have investments that bring a greater return than this amount. All this means is that none of the old ways apply to retirement today. We don't know what the new rules are, as we are living through our time. Just remember in difficult times it is easier to be fiscally conservative.