National Save for Retirement Week

I hesitate to even mention “National Save for Retirement Week” for several reasons. First, every week should be save for retirement week. Second, some of the materials I’ve seen published in recognition of the week have been questionable in their accuracy.

Let’s take a quick look at the official National Save for Retirement Week website. Right from the front page there is a link to a “Five-Minute Check-up” tool. It’s more like a five-second check-up tool. The first problem I observed was that the tool automatically assumes that your income needed in retirement will be the same as your current income. There are so many reasons why that assumption is flawed. It makes a lot more sense to create a theoretical spending plan and budget for your retirement years. At that stage of your life, it’s all about what you spend, not what you used to earn.

Here are all of the assumptions incorporated into the retirement check-up tool:

1. You will need 100% of your current income in retirement. Not true for most retirees. See above and my post on creating a plan for guaranteed retirement income.

2. You will live in retirement for 30 years. This assumption is OK. If you want to play with the longevity number, check my post on life expectancy and retirement planning.

3.  Inflation will remain steady at 3%. I think this is wishful fantasy. Although the White House is trying to move into deficit control mode, the economy is too precarious to really do anything significant. In a few years, we will be begging for a return to 3% inflation. All the more reason to be thinking about investing for inflation protection.

4.  Your annual income will keep pace with inflation. This is probably not a reasonable assumption for baby boomers. For many of us, the income plateau or even downhill slide has begun.

5.  Your savings will grow at an average annual rate of 8%. I’m not even sure I understand this assumption. If they mean that we can expect an 8% annual return on our retirement savings, who are they kidding? That’s what we thought in 1999, when the Dow first cracked the 10,000 mark.

6.  You will earn an average of 5% annually on your savings during your retirement. This is probably a reasonable assumption as a pre-inflation return. Given present and anticipated future economic conditions, I’m more concerned about the real (inflation-adjusted) rate of return.

7. You will use your employer sponsored retirement savings plan (401, 457, etc.) to save for retirement. Makes sense although there is an outcry from many interested parties that the 401(k) is doomed as a viable retirement savings vehicle for most Americans. A new organization – Retirement USA – is working to completely revamp how we provide for our retirement income. Whatever they are able to accomplish, it’s probably too late for most baby boomers to benefit from it.

I’m curious, readers. How did you fare in the “Five-Minute Retirement Check-Up?”

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My Related Posts:

1. A Simple Way to Determine Retirement Readiness
2. Forecasting Retirement Income Success
3. Common Mistakes in Using Retirement Planning Tools
4. Financial Calculators for Retirement Planning
5. Net Worth and Retirement Planning