Question Everything – Financial “Rules” You Should Ditch Now!

Question Everything - Financial "Rules" You Should Ditch Now!

Originally aired 2/24/2021



When something seems too good to be true, it’s probably because it is! On this episode of the Get Ready For The Future Show, we’re talking all about financial “rules” you should question! You’ll learn

You’ll learn:
– Why we continue to believe things that aren’t necessarily true
– Financial rules you should avoid
– Financial concepts you should embrace instead


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Talk is Cheap

  • When something seems too good to be true, it probably is. On today’s show, some common financial ideas that you should question to protect your money.
  • There are a lot of things that have been around a long time and aren’t necessarily fact but a lot of people still believe:
    • An apple a day keeps the doctor away
    • Five-second rule
    • Chewing gum stays in your stomach 7 years if you swallow it
  • Why do we continue to believe these things?
    • People keep talking about them.
    • We know that eating an apple a day won’t really keep you out of the doctor’s office for the rest of your life. But we continue to say the phrase because it’s caught on and it’s something we hear regularly.
  • But what about when it comes to your money?
    • There are some dated misconceptions that could be setting you up for trouble with your financial future.
    • The media and financial bloggers won’t stop promoting them.
      • They will tell you these things work – that building wealth and becoming financially independent is easy – because it keeps you coming back for more.
    • The truth is, financial independence is not easy. There’s no quick, one-size-fits-all way to make your money work as hard for you as you’ve worked for it.

Retirement Income Rules to Ditch

  • Multiply by 25 Rule
    • This rule was developed as a supposed easy way to determine how much you needed to save for retirement.
    • The rule assumes you will live for 25 years in retirement. It also assumes your yearly expenses in retirement should remain the same every year.
      • Example: if you need $40,000 to live on each year, multiply that by 25. So, $40,000 x 25 = $1,000,000.
  • What this doesn’t account for:
    • Longevity
      • What if you live longer than 25 years?
      • A study by Morningstar found that even those who feel they’ll be around for 20 or 30 years after retirement may be underestimating their own longevity — and thus not funding their golden years appropriately.
        • Individuals who estimated that they had no chance of living to 75 actually had about a 50% chance of reaching that age.
        • On the other hand, respondents who said their odds of reaching 75 were 100% actually only had about an 80% chance.
      • You don’t want to run out of money before you run out of time.
        • Are you willing to bet your life that you’ll have an average (or less-than-average) lifespan?
        • That’s basically what you’re doing if you plan your entire retirement without considering factors that could impact your longevity.
    • Inflation
      • Assuming your expenses in retirement will remain the same every year is a dangerous game.
      • LIMRA Secure Retirement Institute constructed a model demonstrating the effect inflation could have on the average Social Security benefit over a period of 20 years.
        • According to its research, a 1% inflation rate could swallow up $34,406 of retirees’ benefits.
        • If the inflation rate were to increase to 3%, the shortfall would total more than $117,000.
  • 4% Rule
    • The 4% rule is basically just the inverse of the Multiply by 25 Rule.
    • This rule is supposed to tell you how much money you can withdraw annually from your investments to live on.
    • It suggests you multiply your retirement assets by 4% to determine how much you can withdraw each year without running out of money before you run out of time.
      • Example, $1,000,000 saved x 4% = $40,000 annually.
  • What this doesn’t account for:
    • Again, people are living longer than they were when this rule was invented, and things are more expensive.
    • Moreover, a major flaw for this rule of thumb is when the market takes a downturn.
      • Let’s say your $1,000,000 today becomes $800,000 due to a market decline.
      • If you take the same 4% to apply to your income formula, you now have to take a decrease in income. Your income is now $32,000 per year.
        • Or you could decide to continue taking $40,000 instead of $32,000. You’re now withdrawing 5% instead of 4%, and your money runs out 5 years earlier.

Investment Rules to Ditch

  • Rule of 100
    • This rule states that an investor should hold a percentage of stocks equal to 100 minus his or her age.
      • Example: Someone who is 50 would keep 50% of their portfolio in stocks.
        • When they turn 60, they should have 60% of their assets in fixed income and 40% in equities.
  • What this doesn’t account for:
    • Individual risk tolerance
      • Your age, investment goals, income, and comfort level all play into determining your risk tolerance.
    • The role of Social Security
  • “Keeping Your Money Safe”
    • Some people will tell you that you shouldn’t lose money in the stock market.
      • Investing with the intent of not losing money.
  • What this doesn’t account for:
    • If you don’t have the potential to “lose” money in the market, you don’t have the potential to gain anything from investing, either.
    • Play-it-safe investments are a head fake – you might miss out on the risk of the market, but you don’t miss out on the risk of inflation (in fact, inflation risk is amplified).
      • It’s a classic example of short-term thinking vs long-term thinking.
    • The 50-year average core inflation rate is 3.8%
    • If you go back to 1991, 30 years ago, an investment of $10,000 at a safe rate of return of 2% over that 30 years would have grown to $18,114.
      • But in that same 30-year period, you would be able to only buy $9,148 worth of goods and services with that money, which means you had a 49.5% loss in purchasing power.
      • If you had $1M in 1991, you would have to have almost $2M today to have the same amount of wealth.

What’s the Plan?

  • At best, these “rules” are a jumping off point for a more comprehensive plan for retirement. At worst, they’re beliefs that can wreck your retirement savings and cause you to end up running out of money.
    • Assumptions and averages have no place in planning your financial future.
  • At GenWealth, we take an education-driven, strategy-based, team-delivered approach to your plan.
  • Through the GenWealth Ready to Retire Process:
    • You share your needs and desires
    • We share our principles and strategies
    • Your team of advisors goes to work
    • We collaborate to harness the “power of MORE”
    • Our relationship continues
  • You’ll get a personalized plan on paper, on purpose.
    • More than just investments or squirreling away money.
    • More than just hoping it all works out.
    • A plan for income.


    • Financial “rules” you should ditch now:
      • Multiply by 25 Rule
      • 4% Rule
      • Rule of 100
      • “Keeping Your Money Safe”
    • You don’t need hope when you have a plan.
      • All of these rules are based on assumptions and hope that it all works out.
      • Having a plan gives you options.