We Don’t Have a Plan

Most workers set lofty retirement savings goals for themselves.  To achieve a financially secure retirement, many workers say they would need to save between 20% and 29% of their income (20%) or even 30% or more (23%).  However, when asked for the dollar value they would need to retire well, most people said they could get by with between $250,000 and $499,999 (21%) or even less than $250,000 (29%).  Only 18% of Americans are aiming for a nest egg of $1 million or more.  In addition, most workers simply guessed at these saving and account balance targets.  Less than half of workers (46%) say they have tried to do a systematic retirement needs calculation.

When we consider our portfolio management strategy, we need to consider our earning curve over time and how that relates to our spending curve over time.  Most of the time, we will earn higher wages (and other sources of income) over time, until we retire.  After retirement, our income from work tends to reduce to nearly nothing.  Most people tend to spend less in retirement than they did at the peak of their high earning years, but the reduction is not nearly as dramatic as most people think.

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