Setting A (Too) High Bar?

A recent article in The Wall Street Journal was titled “Here’s What Retirement With Less Than $1 Million Looks Like in America.” And it’s better than one might expect.

The individuals in this particular piece were a diverse group — indeed, the only real point of commonality was they all had less than $1 million in retirement savings. In view of the ubiquitous headlines proclaiming impending retirement destitution, one might well have expected tales of doom and gloom, though that wasn’t the case here.[i] There WERE, of course, stories of folks keeping an eye on costs, not travelling as much as they had expected, and in at least one case, deciding to stay put, rather than relocate to a warmer climate … but overall, these five — with savings ranging from $240,000 to $800,000[ii] — seemed to be in a good place — and half didn’t even wait till 65 to retire (though all chose their retirement time).

This is NOT the narrative that garners headlines (and clicks), of course. And, let’s face it; these individuals all had SOME retirement savings — presumptively because they, at some point in their working lives, had access to such a plan at work. There’s much to suggest that those lacking that access wouldn’t fare as well, though arguably nothing besides inertia (and in some cases, economics) precludes them from setting aside money in an IRA. But it does bring to mind that ever-present question — how much do you need to retire comfortably, at least on a financial basis?

The real answer is, of course, it depends. 

Throughout my career, I have made several attempts to estimate my post-retirement income needs.  I did this with some trepidation because I had never quite managed to adhere to all the touchstones our industry touts. I never managed to save 15% of pay (even including employer matches, though I always contributed enough to get all of that), and never even maxed out my contributions until the last several years of my career (had to help get the kids through college, don’t you know). And as aggressively as we saved over the course of our lives — including taking advantage of catch-up contributions, we headed into retirement with nowhere close to the 10-12 times my annual salary in retirement savings some say should be your target. 

That said, once I got within sight of retirement, I also found that we didn’t need anything close to the 70% of pre-retirement income target to live the way we lived pre-retirement (much less the 80-85% some now advocate). Now, some of that is because my wife and I have always been modest in our expenditures — we live within our means. Perhaps more significantly, it’s (still) early — there aren’t yet any significant healthcare issues to worry about (we HAVE invested in long-term care insurance) — and my pre-retirement income was…comfortable. And while it wasn’t an economic prerequisite, relocation to a less expensive part of the country has provided some extra cushion (though, in fairness, the move itself, and the inevitable “adjustments” to a new home muted no small amount of that in year #1). 

In fact, how — and where — you live pre-retirement can have a significant impact on whether or not those common — and admittedly generalized — retirement savings milestones are applicable.  And, for those who haven’t — and perhaps won’t — take the time to undertake a more sophisticated analysis, those “rules of thumb” are surely designed to provide a sense of a target that should not only cover, but likely more than cover most needs. And — though long-term financing remains a question mark for many, perhaps most, Social Security provides a solid foundation to build upon — something that is worth checking out before hitting the panic button.

One thing that has been on my mind of late is, have “we,” in our efforts to help Americans save “enough” for retirement, pushed goal posts that are higher than they need to be? And in that process, have we not only undermined the confidence in an ability to retire with dignity, but fostered what seems to be a pervasive sense that the retirement system is…a failure? 

While I realize the answer is as varied as the individuals and individual circumstances considered — I think it’s a point worth considering.

Thoughts?

[i] I’m always amazed at these type of personal vignettes — where a reporter from some major national newspaper somehow manages to track down a handful of individuals who are willing to share intimate details about their lives, financial and otherwise. The cynic in me often wonders at the process of picking particular individuals — do they shape the story, or are they chosen to support the story already envisioned by the writer? That said, they do put some real-life “texture” to the theoretical notion of retirement we all talk about. 

[ii] The article cites data from the Employee Benefit Research Institute (EBRI) that found total household balances in retirement accounts for those 55 to 64 years old are $413,814 on average, based on 2019 data, the most recent available.