With changes in retirement age, retirement duration, benefits, and withdrawal amounts, there’s now more talk about the “rule of thirds.” This rule consists of a strategy that divides retirement funds into three equal parts: one for guaranteed income, one for fixed expenses, and one for growth. It’s a formula that provides stability and retirement potential, benefiting the retiree.
Conditions: there’s a big difference for someone who retires at 62 and someone who retires at 70
This is a measure that can make the years leading up to retirement lighter. It’s similar to the eight-year rule for Social Security. Considering all these specific situations, there’s a big difference for someone who retires at 62 and someone who retires at 70. Therefore, with the eight-year rule, Social Security will allocate smaller payments to those who retire early and will compensate those who wait until 70 with a full retirement in the future. However, this doesn’t mean it’s always a good idea to wait until that age. Therefore, it’s essential to understand each individual case before making one decision or another.
One third would be allocated for guaranteed income, that is, generally through a fixed annuity
One of the main reasons driving citizens to seek alternatives is rising inflation and the rising cost of living in the country. Thus, the thirds strategy distributes income into three dedicated funds. On the one hand, one third would be allocated for guaranteed income, that is, generally through a fixed annuity. This fund covers basic expenses such as housing, food, and medical care, regardless of market performance. Another third would be used for spending flexibility. This third can cover discretionary expenses such as vacations, hobbies, or loans to family members. And finally, the growth third, which seeks to invest in more lucrative assets; this portion protects against inflation and offsets future expenses.
Difference: the eight-year window is the one that most significantly impacts the benefits received by retirees
Thus, there are several different ways to access retirement. Starting at age 62, American citizens can begin collecting their pension; however, many people at that age still feel active and prefer to extend their working life by delaying retirement, in many cases until age 70. Although with changes in the retirement age, each case is different, so the eight-year window is the one that most significantly impacts the benefits received by retirees. Retiring at age 62 will result in a lower benefit of approximately 30% compared to the full retirement age of 67.
‘Rule of thirds’: for years, most people used the 4% rule, which recommended withdrawing 4% of savings each year
According to specific data, postponing retirement age generates an approximate benefit of 8% for each year of delay, reaching 132% of the total benefit. Translating this into concrete numbers, if you are due a monthly payment of $1,000, it will amount to $1,320. Thus, returning to the “rule of thirds,” for years, most people used the 4% rule, which recommended withdrawing 4% of savings each year to maintain their funds throughout retirement.
Offers: guaranteed stability, market growth, and discretionary spending
Ultimately, the rule of thirds could be appropriate for retirees who don’t have decent guaranteed pensions; who need a clear structure that balances stability and risk, and who are willing to invest some of their money for peace of mind. The rule of thirds offers a hybrid strategy: guaranteed stability, market growth, and discretionary spending. It’s designed to cushion the impact when markets fall, while allowing retirees to continue participating when they rise. Therefore, it’s another alternative for those who consider it appropriate.
