We would have to put aside $1.60 per year, leaving only $0.40 in spending during our career, drastically reducing our lifestyle. Our spending would then quadruple in retirement, leaving our pre and post-retirement spending seriously out of balance.
Clearly, we live in a very different world than the one represented in the charts. We face uncertainty about the length of our retirement, our career earnings and the return on financial assets. But I think our experiment does suggest that the goal of retirement savings should be achieving or maintaining a steady spending level.
In a sense, that is what we are already trying to achieve. The problem is that when it comes to our retirement savings, we tend to look at our accumulated wealth with little thought for how that translates into retirement spending. Whether you use online calculators (such as here or here) or work with your advisor on a drawdown strategy, the sooner you begin to focus on how to maintain a consistent spending level, the smoother the transition into retirement can be.
There are other issues about the 80% income replacement guideline. I will return to them in my next post.
Chip Castille, Managing Director, is head of the BlackRock US Retirement Group. You can find more of his posts here.