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Rethinking the Retirement Savings Strategy

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“Should You Save Enough to Live to 100?”  Liz Weston, writing in NerdWallet, recently posed this question. “First,” she wrote, “you were supposed to die at 85. Then 90. Now 95 and even 100 are common defaults when financial planners tell people how much to save for retirement.  Except that’s nuts. In the U.S., the typical man at age 65 is expected to live another 18 years. The typical woman, about 20. Yet many financial planners contend we should save as if we’re all going to be centenarians.”

According to Ms. Weston’s research, if a 35-year-old wanted to replace 60% of her current $60,000 income at age 65, she would need about $1.2 million in savings (assuming 3% average annual inflation and 7% return on investments) if she expects to live to age 85.  Bump that up to $1.7 million ($5,700 per month) if she lives to be 100.

That’s a tall order for most people, since the average 60-something falls far short of the target, and many people don’t have anything saved for retirement.

This isn’t necessarily because of reckless spending.  Consider Ron and Lisa, a couple who came to me for career strategy work.  They’re both in their 40s, and knew, given the current expenses of three pre-teen kids combined with future weddings and college educations and life enrichment (travel, etc.) that there is zero possibility of them saving their way into financial security when they’re past 70.

When we were strategizing, the subject of “retirement” never came up.  Instead they wanted advice on building additional, part-time income streams and risk assessment support to decide whether Ron or Nancy might be in the better position to leave “permanent employment” and take the chance of making a lot more money over time in a freelance/self-employed situation.  They knew that the future for at least one, if not both, of them would probably mean giving up the illusion of a secure job they could hold indefinitely, while taking responsibility for building income streams they could better control well into their 60s, 70s and beyond.  I asked Nancy and Ron what they were willing to give up.   “Nothing!” was their response. “We just want to be a lot more proactive and a lot smarter about our personal and professional lives.”

So here’s the big question to ponder: Why are we so fixated on that seven-figure lump sum, and worry (now and later) whether it will last as long as we do? Why aren’t we focusing more, as Ron and Nancy are doing, on setting up reliable income streams as well as saving as much as we can?

The point is that we need to overhaul our entire retirement-finance strategy, based on assumptions that reflect the new reality. We certainly should be asking more questions, starting with:

  • What we can do if we don’t have a big enough nest egg if we live into our 90s or longer?
  • How we can live well on less than 60% of our current income?
  • Is 60% of current income even the right parameter?
  • Is 90 the right default age for financial planning calculators?

What are other questions you think we should be asking ourselves – individually and collectively – on the way to creating a more appropriate plan for financial security as we age? Please leave your suggestions in Comments.

Here’s the link to Liz Weston’s article: https://www.nerdwallet.com/blog/investing/plan-live-100

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