General vs Personalized Part 2
This is a continuation of my last blog about general financial advice vs personalized. You can click here to read the last topic discussed.
You Should Save 10% for Retirement
The best advice for saving for retirement is to start when you are young. I do not think anyone can disagree with that. I do disagree with the general rule of saving 10% is enough for a comfortable retirement. Not that it is harmful to save 10%, it just may not be what you need to reach your personal goals. I have seen a saving rate need from 10% all the way up to 30% of an individual’s income.
What most people do not realize is that this piece of advice is old. In fact, the rule is older than most people alive today. The most common reference to the 10% rule is mentioned in a book titled “The Richest Man in Babylon” by George S. Clason in 1926. The funny thing about that is that the book is based on parables set 4,000 years ago in ancient Babylon. This book also came at a time when the average life span was about 60 years old, pensions were individual’s primary retirement source, and Social Security did not exist. A lot has changed since then.
When setting a savings goal, you need to look at what you want to accomplish in retirement. Will you move to another state? If so, the cost of living and taxes of the state need to be considered in your planning. Do you wish to retire early? If so, you need to take into consideration you may need to save more to diminish sequence of return risk. Will you travel or spend money on grandchildren? If so, then you may have to consider that your expenses will increase, not decrease, in retirement.
Your life contains numerous variables that should be considered. Planning for a solid retirement takes more than general advice which is why every plan should be personalized to your own situation.
If you forced our hand and asked for a general range to start with, when we review our client’s current income and retirement expectations a common goal is to save 15-20% but again that is not for everyone.