8 rules of thumb on saving and retirement

Financial planning still requires some math
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Sometimes the best advice is the simplest. After all, if it wasn't short and sweet, "stop, drop and roll" probably wouldn't do much for someone on fire. In the same way, financial rules of thumb are useful to many Americans who can't or won't make time for complete and in-depth financial planning.

"Rules of thumb are generally useful for most households, because we found through our research that simplicity is good, (and) that complexity is really the enemy of good household financial decision-making," says Michael Finke, associate professor of personal financial planning at Texas Tech University in Lubbock, Texas.

But while they're useful as rough guidelines for day-to-day financial decisions on saving, investing and retirement, rules of thumb often oversimplify complex issues in ways that can harm long-term financial prospects, says Certified Financial Planner Steve Pomeranz, host of "On the Money" on National Public Radio affiliate WXEL-FM in Boynton Beach, Fla.

"In order for you to do it right, you've still got to do the math, and that's the problem with a rule of thumb. It prevents you from doing the necessary math," says Pomeranz.




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