Rule of Thumb: A Good Way to Make Nonessential Estimates

| September 6, 2012

But a Terrible Way to Plan Your Retirement.

So, how much income, as compared to today would you need in retirement? I know, I know. That’s such a basic question. But if that’s the case, then why do the vast majority of Americans think they’re doing fine until they actually retire? The simple answer: most get this figure all wrong!

To understand how it happens, let’s explore how most folks answer this seemingly simple question: They follow the “rule of thumb,” which in this particular instance says something to the effect of: “You’ll probably only need about 70, 75, 80, 85, 88, or some other percentage of your pre-retirement income.”

As you may or may not know, a rule of thumb is any broadly applied principle for calculating a value or making a determination that is NOT intended to be strictly accurate or reliable in every situation. For instance, the rule of thumb is that a two-year-old child will double his height as an adult. Here’s the thing. While rules of thumb may be fine for guessing at nonessential questions, I’m pretty certain you’d agree with me that they’re  not the surest (smartest) way of planning for a huge and inevitable life change – your retirement income, wouldn’t you?

That’s why if I were planning for a wonderful, peaceful, and financially stress-free retirement, I’d follow a more realistic approach – like this one:

  • First, make a list of your present expenses.
  • Then ask yourself this question: If you were retired today (as in right this moment) what sorts of things would you want to be doing? What kind of lifestyle do you envision?
  • To keep things really simple, don’t even bother trying to figure out what the prices will be down the road – use today’s costs.
  • Next, record your answers and the price tags attached to each of them.

You don’t have to be a math wizard – or even enjoy math – to see the value in this exercise. All you need is a pad and pencil to realize that if you intend to do anything other than sit in front of your TV all day, every day, “the rule of thumb” is just setting you up for a nasty surprise. Here’s another thing you might find insightful. Have a chat with a few retired folks about the relationship between their pre-and-post-retirement income and find out whether any rule of thumb worked for them.

Maybe this stab-in-the-dark method of retirement planning might be working quite well for some people. However, I’ve not yet been fortunate enough to meet anyone in that category over the nearly two decades I’ve been in this line of work. So do me a favor, and please let me know when you meet one.


Samuel N. Asare, is the senior strategist at Laser Financial Group, and a noted retirement-income planner. His straight-forward and superb ability to simplify often-complex strategies has made him a regularly featured expert in various print, radio, and television media. Samuel is the celebrated author of several personal finance books and the acclaimed Proven , Common-Sense Wealth Building blog.  His firm trains financial professionals on a variety of retirement-related subjects, and he regularly speaks to investors about how to retire successfully. Afrikan Goddess readers may schedule a complimentary, no-obligation consultation with Samuel by calling 877.656.9111 or visiting

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Samuel Asare MBA, CRPC, CMFC, CTP

Samuel Asare MBA, CRPC, CMFC, CTP

Samuel N. Asare is the senior strategist at Laser Financial Group, a regular columnist/commentator for various national and regional publications, author of Proven , Common-Sense Wealth Building blog, and four personal finance books. He holds an MBA and is a Chartered Retirement Planning Counselor, a Charted Mutual Fund Counselor, a Certified Treasury Professional, and a Certified Business Manager. To get more straight-forward retirement insights, visit, or connect at

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