The rules of retirement used to be simple: retire at 65, be conservative with your money, live off the 4% rule and don’t tap Social Security until full retirement age.
But retirement doesn’t look the same as it did just a generation ago. Retirees are living longer, working differently and facing financial challenges — like a volatile market and adult children who need a helping hand.
These new realities are rewriting conventional retirement wisdom. Here are a few common “rules” that may have worked for your parents’ generation. And why it might be time to break them.
1. Retire at 65
For a long time, 65 was the target retirement age. It might have made sense back in 1935, when Social Security launched and life expectancy was 61. Today, a healthy 65-year-old can expect to live to their mid-80s — which means you could be funding three decades of expenses.
If you keep working, each additional year gives your investments more time to grow. Meanwhile, delaying Social Security to age 70 grows your monthly benefit by 24%.
More importantly, you don’t have to choose between full-time and fully retired. Easing into retirement — going part-time, consulting in your field or taking on seasonal work — gives you a gradual off-ramp, rather than an on/off switch.
2. Downsize your home
Common retirement advice is to sell your big house and move into something smaller. But run the actual numbers first. When you factor in today’s housing market, the math might not add up.
Selling a $400,000 home? You could be facing $20,000 to $30,000 in real estate fees and closing costs alone. And that smaller home you’re eyeing? It’s appreciated right along with yours, meaning you could be trading a paid-off mortgage for a new one on something that’s barely affordable.
Downsizing can also mean losing the community ties you’ve built for decades and giving up the space where family wants to visit.
If you’ve paid off your home and can manage the upkeep, staying put frequently makes more sense than moving. Instead of downsizing, consider “rightsizing” — remodel for accessibility, rent out a room or tap your home equity while you’re still employed.
Sometimes the best financial move is the one that lets you stay in the neighborhood you know.
3. Play it safe with investments
Conventional wisdom says to shift everything into “safe” investments like bonds and CDs once you retire. But with retirees now living 20 to 30 years past 65 and inflation averaging higher, playing it too safe can actually be riskier than playing the market.
In 2022, even supposedly “stable” bonds lost 13% as interest rates jumped, while retirees who’d moved to fixed incomes watched their purchasing power erode.
If you can cover your basic expenses — housing, food, health care, utilities — with guaranteed income sources like Social Security, a pension or annuity payments, holding on to growth investments can help your nest egg keep pace.
Financial advisors recommend a balanced mix of stocks for growth, bonds for stability and cash aligned with when you’ll actually need the money, which often works better than a “set it and forget it” strategy based solely on your retirement date.
4. Follow the 4% withdrawal rule
The classic 4% rule for retirement — withdraw 4% of your retirement portfolio balance each year — worked well when it was created in the 1990s, a period of relatively predictable markets and steady returns. Today, the financial landscape has shifted: markets are volatile, inflation is spiking and retiring before a downturn can rattle any fixed strategy.
Say you retire with $500,000 in savings and investments. You take out $20,000 in Year One, and now you’re stuck withdrawing that amount (adjusted for inflation), whether the market’s up 20% or down 15%. This can quickly drain your savings during extended downturns or leave too much unspent in market booms.
A better approach: Tie your withdrawals to actual market performance. With a more dynamic withdrawal strategy, you’d take 3% in a down year to give your portfolio time to recover and 5% in a good one, after your balance has grown.
This flexibility serves two purposes: It helps your savings last longer by reducing withdrawals when the market’s down and gives you space to increase withdrawals — or even splurge on that long-delayed family vacation — when you can afford to.
5. Claim Social Security at full retirement age
Sure, waiting until full retirement age (67 for most people) to claim Social Security can maximize your benefits. And it’s true that delaying increases your monthly check: for every year you postpone past FRA until age 70, your benefit grows by some 8%.
But waiting isn’t always the smartest move. If your health is uncertain or you need income now to avoid tapping into your savings or investments in a downturn, it could make sense to claim early. Or maybe you’re the lower-earning spouse — claiming early allows the higher earner to delay claiming, protecting the other spouse’s with increased survivor benefits.
The key is to balance lifetime benefit potential with real-world needs. Claiming at 62 gives you eight extra years to income and can preserve your retirement accounts, providing breathing room when markets are down. Waiting until 70 boosts your lifetime payout if you live into your mid-80s or beyond.
The “right” age depends on your health, your other income sources, your savings and your family obligations — not a one-size-fits-all rule.
6. Live off interest alone
For decades, financial advisors told retirees to preserve their nest egg and live solely off of interest and dividends. This rule made sense when “safe” investments like CDs and bonds reliably paid higher yields. Three-month CDs averaged over 18% in the 1980s, for example, while 10-year Treasury yields stayed above 8% through the early 1990s.
Those days are behind us. Today, a five-year CD might pay 4% APY, and high-yield savings accounts hover around 4% APY — barely enough to cover groceries, let alone health care, travel and household needs.
A more sustainable approach: Use a structured drawdown strategy to tap your principal. Many financial advisors recommend a “bucket strategy” that divides your savings into three accounts:
- Immediate bucket — 2 to 3 years of expenses in cash or short-term bonds
- Medium-term bucket — 3 to 10 years of expenses in balanced investments
- Long-term bucket — 10+ years of expenses in growth investments
This approach lets you spend from the near-term bucket without panic-selling stocks during downturns, gives your medium-term bucket time to recover from volatility, and allows your long-term bucket to grow — without peace of mind you won’t miss out on life.
7. Leave a big inheritance for loved ones
Some retirees sacrifice experiences, necessary health care or basic comforts to leave money behind for their children. But with Americans now living 20+ years in retirement and the cost of living on the rise, those savings you’re preserving might be the difference between a secure retirement and becoming a burden on those same adult children later.
Consider a “living inheritance” strategy instead. This means gifting money when it can make the biggest difference: $15,000 toward a grandchild’s 529 plan compounds for years and helps you avoid gift tax. Covering a $25,000 down payment helps your child lock in valuable equity today, rather than compete in a more expensive housing market later. Paying $18,000 for a loved one’s college expenses prevents them from taking out student loans at rates of 8% or higher.
Giving now allows you to witness how your generosity changes your family’s life. Just do it strategically. Work with a financial advisor to make sure you’re not jeopardizing your own security. And talk openly with family members about what you can and can’t do.
The goal is to find a balance that effectively serves both you today and your family tomorrow.
8. Never financially support adult children
The old adage says that supporting adult children will drain your retirement. And that’s true for many retirees supplementing monthly costs, cosigning loans or funding lifestyle choices.
But there’s a difference between writing open-ended checks and making strategic investments in your family’s future. One-time contributions toward job training, short-term help during a move or for child care, intervention to bridge a crisis or rough patch — all can prevent small issues from becoming larger problems down the road, improving the financial stability of your family.
The key is setting clear boundaries up front: “We can help with $4,000 toward your certification, but we can’t provide ongoing support beyond that” or “We’ll cover your moving expenses up to $3,000, but once you’re settled, you’ll need to manage everyday costs on your own.”
Treat large amounts like a loan, with everything in writing. Set limits and keep your help focused on a goal. Done thoughtfully, your support can move your kids toward independence while fitting into your retirement plan without sacrificing your own security.
Bottom line: The smartest retirees know which rules to break
The old retirement playbook was written when the average retirement was shorter, markets were more stable and family finances were simpler. But those days are gone.
Today, you can live decades past retirement age, navigating volatile interest rates and inflation with family obligations into your 70s. And rigid rules can actually undermine the financial security they were designed to protect.
The best rules are flexible and build around what matters: a safe, meaningful retirement with enough to manage health care, help out loved ones and enjoy the years you’ve worked so hard to reach.
