Saving the Dream

Why is it so hard to save?


Source: US Dept of Interior

We often hear that there is a retirement crisis in this country. 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.

Source: FRED

For most folks, that’s not enough. Folks want or need more like 70% of their final salary to retire comfortably. But how do you 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 ultra-low national savings rate is a bit misleading. Life-cycle savings peaks between ages 50 and 60 at a much higher rate—after kids are out of the house but before retirement. But it’s hard to set more aside when the tax-code punishes this kind of prudence.

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


Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
Leave a comment if you have any questions—I read them all!

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