A 2012 article by Joe Tomlinson at Advisor Perspective discusses some solutions to a broken retirement system here in the US. Some of the ideas being tossed around include:
- Creating a government-mandated retirement account with a guaranteed 3% return on investment.
- Required Defined Contributions (401k).
- Auto enrollment into 401k, 403bs, etc., when available or an IRA when no retirement plan is available.
In other words, if you save for 35 years, and cannot stomach any risk, and need to have a 100% bond portfolio, you’d need to save 21.8% of your salary to be 90% confident that you could retire. On the other extreme, if you were a risk taker and had ALL stocks, you’d need to save 15% to have the same confidence. This coincides with an earlier blog I wrote, How Much Should You Be Saving?
The most interesting part is that PEOPLE aren’t saving that much. Well, most people I work with do, but that’s because they come to me looking for advice on their savings. But according to the Federal Reserve, the average savings rate is 3.2%.
So when someone is talking about how to fix the retirement system, the solution might be to first educate savers on how much they should be saving.
Note: While these are general savings rates, and do not consider other sources of retirement income such as social security, pensions, etc. they are pretty good guidelines.
Personal Savings Rate
