The 'Rule Of 70' Could Cost Retirees, According To A CFA

Many savers are familiar with specific 'rules of thumb' when it comes to setting aside money for retirement. For instance, the 25x rule offers a simple, one-step calculation to determine a baseline savings target for your nest egg, while the 4% rule for retirement starts with a 4% drawdown on your portfolio and then adjusts for inflation each year to protect your principal value. However, another guide you may have heard of is the rule of 70, and while it might feel useful it can actually sink your financial stability as you age. We spoke with Earl Yaokasin, CFA and investment manager at WealthArch, to explore the finer points of this misconception.

This rule, he explained, "projects that a future retiree will only need 70% of their pre-retirement income during retirement." This allows savers to identify a basic framework for how much money they'll need each month and year to support their lifestyle after leaving the workforce. Per the rule of 70, if you're a typical wage earner in America today (at a 2024 median personal income figure of $45,140, according to the Federal Reserve Bank of St. Louis), you'd need $31,598 annually to retain the same basic hallmarks of your lifestyle, or roughly $2,633 per month. This basic math can feel especially sound when you consider that many homeowners will finish paying off their mortgage around the time they retire — shedding an expense that, ideally, accounted for around 30% of their gross income. However, Yaokasin says that this way of thinking is flawed, and that the rule of 70 may not be the best framework to work from.

As Earl Yaokasin explained, "I actually think that the rule of 70 is not a good tool for retirement for several reasons." Namely, it "assumes that people will spend 30% less when they are retired, but that's not always the case. From my experience with my clients, some of them spend even more." He also added that increased spending is particularly prevalent in the first few years after making the retirement transition as added free time entices people to travel more and enjoy the freer possibilities. Those who have spent their days working tirelessly while cooped up in an office will naturally want to see and do some of the things they may have felt unable to enjoy before, resulting in costly additions to their budget.

Another issue that Yaokasin brings up is the fluctuating nature of the market. Even if you aren't intentionally spending more, the market has a way of forcing over-reliance on principal at times. As he explained, the rule "assumes investment returns will be steady, and that isn't the case. If a person retires at the top of a bull market and the market has a large correction of 40% or more, they will not be able to retire comfortably." This means that continuing to withdraw the same dollar value can drastically impact the underlying volume of stock sales required to maintain that drawdown — even on a rolling monthly basis.

No matter what strategies you employ to prepare for retirement, there's always going to be a layer of uncertainty that must be accounted for. As Earl Yaokasin explained, "There are lots of unknowns" when planning for your golden years. "Life expectancy, investment returns, inflation, taxes, true expenses, etc." all factor into the equation and can be difficult or impossible to predict. He also added that "it is far better for people to be more conservative and build buffers to make sure that their money outlasts them, rather than trying to be precise and get surprised later on." He emphasized, "The rule of 70 isn't conservative and doesn't build in this buffer."

Yaokasin also added that while some expenses can (or should) shrink when you retire, other spending categories only rise as you age. "Healthcare costs are rising significantly in 2026. It would be imprudent for many retirees to project lower costs." Legislation heading into the new year is poised to place many people at risk of significantly inflated bills when handling their health, but many other factors are also at play here, too. Inflation is a constant headache that retirees need to plan for, and health services also tend to become more consistent in the lifestyle of an aging retiree, adding to expenses by virtue of volume. Accounting for these surprises means looking beyond a static figure to guide your expected spending, and the planning that should accommodate it.