THE NEW RULES OF RETIREMENT

Popular guidelines about how to save, invest and spend need to be updated and personalized to ensure you'll never run out of money.

- BY DIANE HARRIS

FOR decades, long-term savers and retirees have relied on common rules of thumb to help motivate and guide them on the road to and through retirement.

The precepts say you should aim to save 15% of your annual income, for instance, or subtract your age from 100 to determine how much of those savings to invest in stocks. Perhaps the best-known principle, the 4% rule, suggests that once you retire, you limit your initial portfolio withdrawal to 4%, then adjust the amount annually for inflation, to ensure your savings will last your lifetime.

But can 20th-century guidelines—directives developed before anyone ever heard of an iPhone, social media, the gig economy or other staples of life today—really serve the needs of savers and retirees in the more financially complex 21st century? Indeed, do general rules of thumb, no matter when they came to pass, make sense at all, given the big differences between people’s personal situations and goals?

The answer is yes, many financial experts say—if you know the right way to apply these principles, update them to reflect current times and adapt them, as needed, to your individual circumstances. “The most accurate answer to the questions that retirement rules of thumb try to answer should always be: It depends—on your income, say, or your lifestyle or age. But in real life, that’s a frustrating answer,” says David Blanchett, head of retirement research at Prudential Financial. “These rules are best viewed as a starting point, a piece of guidance that gets you going in the right direction and recognizes that not every person has the time or inclination to seek out a personalized plan.”

Behavioral-finance studies show that people rely on rules of thumb to provide mental shortcuts for complicated decisions they might otherwise guess at or not tackle at all.