Utilizing the strategy of the rule of 100 could be the difference between retiring comfortably or having a difficult time in retirement. It’s a simple idea but few advisors follow this concept, leaving many retirees in a situation they may never recover from in retirement when the stock market declines dramatically.
So what is the rule of 100? It is a safe and smart strategy on how you should allocate your retirement and investment accounts, how much you should keep at risk in stocks or mutual funds and how much should be in safe money accounts. Take the number 100 and subtract your current age, this will tell you how much of your retirement assets you should have in equities (stocks, mutual funds) and how much you should have in safe money non-risk accounts.
Let’s look at an example. Let’s say you are 60 years old and would like to retire in 6 years at age 66. You have $100,000 in your 401k with your employer, how much of this $100,000 should be kept invested in “at risk” stocks and mutual funds. Well, simply take 100 and subtract your current age 60. So, you should have no more than 40% of your retirement accounts in stocks or mutual funds and 60% should be repositioned in safe non-risk accounts such as CD’s, Fixed Interest or Indexed Annuities.
This strategy will protect you from big swings that inevitably occur in the stock market like in late 2008. When the markets go down 30% or more and if you still have 100% in the stock or mutual funds, then you would lose approximately 30% or more of your retirement nest egg.
At age 58 and older it’s all about your time horizons, you have much less time to recover in today’s volatile market, but most people tend to get greedy looking for “the big returns” or their advisor conveniences you to stay the course. Retires may need to initiate a conversation with their advisor, since many advisors are only licensed to offer at risk securities. Give us a call at 417-319-5945 or send us an email: [email protected].