Retirement Dreams

Why is saving for retirement so hard?

Photo: Ahborson. Source: Morguefile

We often hear that there is a saving crisis. People don’t save enough today to fund their retirement tomorrow. And with the national savings rate somewhere around 5%, that seems pretty accurate. After all, if you save 5% of your salary for 40 years—and just put it in the bank—by the time you retire you’ll have only two times your salary socked away. If you spend 5% of your savings every year in retirement, you’ll only replace 10% of your final salary.

Personal Savings Rate—the different between Personal Income and Personal Consumption. Source: FRED

For most folks, that’s not enough. People want or need something more like 70% of their final salary to retire comfortably. But how do we get there? Social Security only replaces some of that need. A recent analysis indicates that by setting aside 20% and investing it conservatively, a 40-year career should be enough to fund a 20+ year retirement. And our 5% national savings rate is a bit misleading. Life-cycle savings peaks between ages 50 and 60 at a much higher rate—after the kids are out of the house but before retirement. But it’s hard to set more aside when the tax-code punishes prudence.

The alternatives to saving more are clear, though: work longer—don’t retire; work harder—take a second job; or cut expenses by moving in with your parents—or kids. When we see these choices, it’s not so hard to save.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:21:33+00:00 December 29th, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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