The Rule of 100

When we mathematically build a retirement plan we do it from the bottom up, building it off a strong foundation.  In that foundation are assets which cannot be lost.  They are, what we call, Low Risk protection  … that is no market, inflation or tax risk.

Then, when this foundation is established, we add more moderate risk investments and then higher risk investments on the top.  Now, we use in our planning a standard formula that has been used for years called the Rule of 100.  The rule says that if you take 100 minus your age….in this case 100 - 65 = 35, that shows how much of your assets should be invested in moderate and high risk investments. …in this case, no more than 35%.  So, you can see, as you get older, the amount invested in moderate and high risk investments goes down.

Upside down planning

Many of our clients, before working with us, do what we call Upside Down Planning.  It looks like this.  Does that look familiar to any of you?

It’s just the opposite of a good plan, and very dangerous and unstable.  The reason a lot of people do this is that, as we get older, we don’t think of ourselves as older.  We are, after all, young at heart.  So we invest like we are young….and then get into retirement trouble. 

If you work with us, that is, make an appointment to see us, this is the first thing we work out with you.  If you don’t work with us, be sure to take this diagram to your advisor and move your assets into the proper categories.  If you get one thing from our seminar, this could be the most important to you.