Baird’s Director of Financial Planning Tim Steffen Debunks Common Retirement Myths

MILWAUKEE, Oct. 11, 2012

Tim SteffenWhen it comes to commonly held beliefs about saving for retirement, there are far more exceptions than rules. Tim Steffen, CPA, CFP®, Director of Financial Planning for Baird’s Private Wealth Management group and retirement myth buster, provides clarity and perspective around a few popular retirement rules of thumb.

RULE: Subtracting your age from 100 should determine your equity exposure.
This oft-cited rule about how much to invest in stocks leaves many retirees with too little invested in equities. Remember that life expectancy tables are meant to be an average. It’s not unusual for a couple that retires at age 60 to spend one-third of their life in retirement. IRS single life expectance tables show that once that person reaches age 70, their life expectancy is 87. However, if you look at a married couple, both age 70, the tables say that one spouse can expect to live to age 97.

As a result, portfolios may need to support a retirement lifestyle for a longer time period, especially considering there are no more “new” dollars coming in. “Gradually, but significantly, moving out of equities starting at retirement could mean running out of money later on,” Steffen said. “Instead, retirees almost always need to maintain a portion of their portfolio in growth-oriented assets.”

RULE: You should replace 70 percent of your income in retirement.
That assumption may work for a younger individual planning for retirement decades away. For someone approaching retirement, however, consider your own personal spending goals instead. Some retirees find that when they first retire, they have more free time to do the things they never could do when they worked such as travel, hobbies and dining out. Others may find they spend more money on grandchildren. Add in higher costs for health care, and many find that their expenses in retirement don’t decline as much as they thought they would. You need to think carefully and be specific about your own anticipated situation in retirement.

You also have to take a close look at what your retirement resources are. “Don’t go into retirement assuming you can spend 70 percent of what you made before you retired,” Steffen said. “If your resources can’t support that, you may quickly find yourself looking for work.”

RULE: Your retirement nest egg should total 20 times the expected expenses for your first year of retirement.
This is one of the few rules based on expenses rather than income. The problem is that it can be difficult to determine exactly how much those expenses might be. Uncertainties about inflation, lifestyle, health care, housing, insurance, and the needs of children and grandchildren can make it extremely difficult to estimate expenses during retirement. For many, it’s easier to focus on income rather than expenses when setting retirement savings goals.

RULE: You can withdraw 4 percent of your retirement savings annually and never run out of money.
This is known as the “sustainable retirement withdrawal rate,” and is based on a well-known study. More recent studies have found that you can get that number up to 4.5 percent, or even a few points higher, if you use a more dynamic approach such as changing withdrawals based on market conditions, for example. According to Steffen, “There can be some good advice in this rule, but you have to be careful not to be too literal about it.”

Retirement Planning Takeaways

According to Steffen, “There are two ways to plan for retirement – (1) save as much as possible, then when you get to retirement figure out how much that will allow you to spend, or (2) figure out what you want to spend, then back into how much you’ll need at retirement. Both strategies can work, but the latter will likely leave you feeling more prepared. You don’t want to save, get to retirement, and then find out you do not have enough to support the lifestyle you desire.” To schedule an interview with Tim Steffen on this or related topics, contact Amy Nutter, Baird Public Relations, at 414-765-3988 or

About Tim Steffen
As Director of Financial Planning for Baird’s Private Wealth Management group, Tim Steffen is a noted expert on the financial and estate planning needs of high-net-worth individuals. Prior to joining Baird in 1999, he worked in Arthur Anderson’s Private Client Services group where he specialized in tax and financial planning. He earned his bachelor’s degree in Accounting from the University of Illinois. Steffen is a Certified Public Accountant/Personal Financial Specialist, a CERTIFIED FINANCIAL PLANNERTM professional, a Certified Private Wealth Advisor® professional and a member of the American and Wisconsin Institutes of CPAs, the Financial Planning Association and the Investment Management Consultants Association. For more tax and financial planning tips and insight, follow him on Twitter @steffen_rwbaird.

About Baird
Baird is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. Established in 1919, Baird has more than 2,700 associates serving the needs of individual, corporate, institutional and municipal clients. Baird has nearly $94 billion in client assets. Committed to being a great place to work, Baird ranked No. 21 on FORTUNE’s 100 Best Companies to Work For in 2012 – its ninth consecutive year on the list. Baird’s principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe. Baird also has an operating subsidiary in Asia supporting Baird’s private equity operations. For more information, please visit Baird’s Web site at

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM and federally registered  in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirement.
For additional information contact:
Amy Nutter
Baird Public Relations