If you’re reading this because you think you’re following some antiquated retirement advice … well, you very well might be.
We’re not throwing shade at anyone. Often, people give advice based on what worked for them—which makes it great advice for them, just not necessarily great advice for you. As it pertains to retirement, inflation, the housing market, other aspects of the economy, and a few decades of change have changed the landscape from when, say, your parents started planning for retirement.
Ideally, your retirement strategy should be customized to you. But everyone needs to start from somewhere, and some well-worn retirement rules offer a decent launch point as you start to wrap your head around planning for the future. Thing is, some rules have been worn into the ground and aren’t as useful as they once were.
Today, I’ll talk about a few well-known retirement rules that had their day, but shouldn’t be taken as gospel anymore. After explaining why each rule may be outdated, I’ll discuss more modern guidelines that you can use as you start your early planning and preparations for retirement.
Ignore This Old-School Retirement Advice
Take a moment to consider some of the financial differences of today compared to several decades ago.
According to the Education Data Initiative, the average cost of a college tuition and fees for four-year colleges rose 141% over the past 20 years. There was a time when college degrees nearly guaranteed high-paying jobs. Now they don’t—and those degrees are more expensive.
Per U.S. Census data, the median home value in the United States was only $20,200 in 1965. Adjusted for inflation, it was $202,215. In 2024, the median value was $420,800—more than double the inflation-adjusted 1965 cost. The advice back then—buy a house young, with a large down payment—isn’t often feasible today.
Considering some of the financial changes over the last few decades, it makes sense that current financial advice should differ from that of the past. That’s why you can’t assume the retirement guidelines your parents followed will work for you.
Let’s review a few of the retirement rules that are due for an update.
Rule #1: The 60/40 Rule
The 60/40 rule—or the 60/40 retirement investment portfolio—is broad guidance that says a person’s investments should be split: 60% into stocks, and 40% into bonds and other fixed-income investments.
The general idea here is building a “balanced” portfolio that’s diversified among higher-risk/higher-return investments (stocks) and lower-risk/lower-return investments (bonds). It provides some level of upside without exposing you to too much risk. And it produces returns from both capital gains (prices go up) and income (dividends and bond interest).
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Why is the 60/40 retirement investment portfolio outdated?
The 60/40 rule is attributed to Nobel Laureate and economist Harry Markowitz, who developed Modern Portfolio Theory (MPT) and suggested an optimal portfolio allocation of 60% stocks and 40% bonds … in the 1950s.
The world is simply a different place now. 401(k)s have surpassed pensions as the retirement savings plan of common resort, and life expectancies have gone up considerably, increasing the amount of time our nest eggs need to last.
That’s not to say the 60/40 portfolio is necessarily bad—but it might be too conservative for many retirement savers and leave them short of their goals. Furthermore, a portfolio of just stocks and bonds might not be diversified enough. If you’re trying to get income, inflation protection, downside protection, and growth from a portfolio, you might want another asset or two in the mix.
Related: What Does the Average 55- to 64-Year-Old Have in Retirement Accounts?
What should you do instead of the 60/40 investment portfolio?
Very broadly speaking, a 70/30 mix might be a better starting point for the average investor. Additionally, to have a sufficiently diversified portfolio, an investor might want to add a couple more asset classes into the mix. Specifically, that means alternative investments—which range from the orthodox (commodities, real estate, private equity) to more adventurous (cryptocurrency, fine wine, art).
But your exact ideal allocation is going to boil down to your financial specifics, including savings goals, time horizon, and risk tolerance. The portfolio of a 20-year-old shouldn’t look the same as someone two years away from retirement.
Related: How to Invest for (And in) Retirement: Strategies + Investment Options
Rule #2: The 80% Rule
The 80% rule is another retirement rule, but this one isn’t about asset allocation—it’s about savings goals.
The 80% rule suggests that you should aim for your retirement income to replace approximately 80% of your pre-retirement income.
Why not 100%? Well, during one’s working years, part of your income goes toward saving for retirement, so once you’re in retirement, you can cut account contributions out of your budget. Also, several other spending categories become cheaper when you retire: you have no daily commute (which cuts down on transportation costs), food expenditures often decline, and senior discounts also can lower the prices of several regular goods and services.
Related: How Long Will My Savings Last in Retirement? 4 Withdrawal Strategies
Why is the 80% Rule outdated?
Unfortunately, retirement costs are higher than they used to be. Older adults might have to pay more for housing, home renovations, and food than they anticipate.
Health care costs are another wild card, too. Medicare doesn’t cover everything, after all, and although senior discounts can help with recreational activities, some hobbies are still pricey. Indeed, in many cases, travel is actually more expensive for seniors than for their younger counterparts.
Related: 10 Home Improvement Investments That Don’t Pay Off
What should you do instead of the 80% Rule?
“It’s better to be safe than sorry” applies to a lot of things, but certainly retirement.
If you’re looking for a general guideline, instead of planning to replace 80% of your pre-retirement income, shoot for 90% instead. Though some professionals say you should aim to replace every cent of your pre-retirement income.
But in truth, the best percentage for you will depend on your intended lifestyle during retirement. And that’s something you’ll want to discuss at length with a financial advisor.
Related: How to Choose a Financial Advisor
Rule #3: You Shouldn’t Carry a Mortgage Into Retirement
The prevailing wisdom is to pay off your mortgage before you retire, and it has pretty sound reasoning behind it. Your mortgage is typically one of your highest monthly expenditures, so eliminating that can help a retirement budget stretch much further. Paying off your mortgage can substantially reduce how much you ultimately pay in interest. You’ll have more equity. And there’s an enormous emotional satisfaction in closing the book on that financial burden.
Thus, it makes sense for some people to set a goal of paying off their mortgage before they retire.
But don’t treat this like a hard-and-fast rule. It’s not. In some situations, continuing mortgage payments in retirement can be a financially savvy choice.
Related: Here’s How You Can Lose Medicare [And How You Won’t]
Why shouldn’t the mortgage rule always be followed?
Here are a few instances in which it makes sense not to follow this mortgage advice:
- You’re behind on your retirement savings. Rather than paying ahead on your mortgage, it might be financially advantageous to sock money away into tax-advantaged retirement accounts instead. Depending on your age, you might qualify to add catch-up contributions or even super catch-up contributions to some of your retirement accounts.
- You don’t have an emergency fund. Even if you have ample retirement savings, you still need a basic emergency fund that covers three to six months’ worth of living expenses. Excess savings might be better spent building that emergency fund rather than paying down that mortgage.
- You have a very low mortgage rate. Let’s assume your retirement is maxed out and your emergency fund is sufficient. Even then, if you have a very low rate on your mortgage, it might be mathematically beneficial to put your money into investments that can grow at a greater rate than the interest being charged on your mortgage. For instance, if you’re locked into a 2.5% mortgage rate and you could earn 5% annually through a certificate of deposit, you’d come out well ahead by plunking your money into that CD. (And in the case of getting that kind of yield from a high-yield savings account or money market account, your funds would be more liquid, too.)
Related: How Much Should You Financially Support Adult Children?
What should you do if you need to carry a mortgage into retirement?
If you want or need to retire, but you haven’t paid off your mortgage yet, you might be able to at least reduce the burden somewhat.
In some situations, you might be able to refinance to a lower interest rate. However, given the direction of interest rates over the past couple of years, that might not be an option.
Retirees sometimes downsize their homes to cut down on costs and home maintenance tasks. Even if your mortgage isn’t fully paid off, you might be able to sell your home for enough to pay the remainder of the mortgage (and other home-selling costs) while still netting enough to afford your downsize.
Related: How to Retire Without Investing in the Stock Market
