Mission Wealth’s rule helps clients focus
on income that outpaces expenses and on an investment portfolio that will tend to be
conservative. “But it also makes them think about the future (i.e., inflation),
and that taking some risks is important for growth,” Stark said.
The formula reveals only three possible outcomes, Stark
pointed out: Investors who need to do a better job of saving more, investors
who are nearly there, and the fortunate few who have more than enough put away.
People who don’t have enough set aside for retirement want a
plan to meet their goals. Some will try to push the envelope on rates of
returns, which was the downfall of many who retired too early in the late ‘90s,
thinking that double-digit returns would continue forever. If they followed the
90/70/30 rule, Mission claims, they would have been far less aggressive with
their nest egg or determined that they truly did not have enough.
Those who have just enough saved need to
focus on expenses, especially during the first years of retirement, to make
sure they do not invade principal. The lucky ones with excess savings tend to
worry about whether they have enough. “From experience, savers are always
savers,” Stark observed.