How much to save for retirement

How much should someone save for retirement? Most people focus on a number: $750,000, $1,000,000, $1,300,000, 70% or more of your previous earnings, working backwards from the 4% withdrawal rule to get the lump sum at retirement, and the list goes on. There are any number of shortcomings with these approaches as I have noted over the many years of research backed seminars, articles and meetings with 1000s and 1000s of consumers.

The focus is on the asset side or income side. What about the expense side?

Consider some issues with these approaches,

1) The focus is on the asset side or income side. What about the expense side?

2) A number of these oft' touted and old rules of thumb either don't work today or don't take into account income taxes, other sources of income, the markets, or some of the statistical evidence of spending patterns of retirees.

3. Surveys ask regular people for the number. Respectfully, they have no sophisticated education and training in this area; they haven't done any retirement planning let alone any retirement income planning; and the idea of cash flow planning is something few engage in now let alone for retirement

4) The definition of retirement and when that next chapter in people's lives starts, let alone ends, is changing and evolving pretty quickly.

5) And finally, the goal, the number is so big and far off that most people cannot identify with it and there are no guideposts along the way that show smaller or more achievable wins, breaking up the big goal into more bite sized pieces.

A retirement income goal depends on lifestyle goals which change over time in terms of how much, how long and when they start.

Consider the following chart as a conversation starter that can lead to customized goal setting, a reference for periodic review and a visual representation of saving for the long term. As your clients get closer to their target date for financial independence and the next chapter of their lives, switch the conversation and planning to income and lifestyle planning, with the focus on after tax income flow, not accumulated assets.

? 2024 by peter a wouters

The material in this article is current as of the date published. This material is presented for informational purposes only, and is not a legal, tax or investment opinion. The provision of the information contained herein and any oral or written communication regarding the same should not nor is intended to be construed as such. Interested persons should seek and retain independent professional advice before acting or foregoing action in relation to any of the matters mentioned herein reflected as of the date published or updated.