The beginning of every year seems to be an especially popular time for articles about retirement planning,
and the goals that you should set your sights on to be prepared. The problem is that all the "advice" that is
being offered is exactly the same as what was being offered last year. And the year before, and all the years
before that. The articles are just recycled and regurgitated. The same savings benchmarks by age (that most
likely don't apply to you), the same withdrawal rate rule of thumb (mostly outdated or misleading), and the
same assumption about replacing a set percent of your income (again, that most likely doesn't apply to you).
Not to mention the unending suggestions to use a financial calculator - all of which omit essential information
and operate on false assumptions, making them just plain wrong. I'd like the authors to rely on them and see how things turn out. The problem is that none of this is useful in the first place.
While it may be true that the basic principles of financial planning do not change in any significant way from one
year to the next, simply repeating inaccurate and misleading information doesn't make it helpful, or true.
Haven't our politicians proven this? Everyone's needs, wants, and circumstances are unique, and the steps that they
need to take to reach their goals must be individually determined. The only way that generic benchmarks and "advice"
will be helpful is by accident. If you make $150,000/year, but only have 50,000/year in expenses (first of all,
good for you!), you won't need to replace 80% of your salary in retirement (the most popular recommendation).
If you currently have a mortgage that will be paid off before retiring, that alone could reduce your expenses by 20%-25%, as mortgage payments often represent 20%-30% of income. You also don't need to limit savings
withdrawals to a specific % each year (i.e., the 4% "rule") to have your money last through retirement. Many assumptions were made in creating this hypothesis that are rarely mentioned, and that make it a very rigid model.
It might work in a perfect scenario, but withdrawal %'s can easily fluctuate, and even be greater than 4% every year,
and still have savings last for 25 years. A financial plan needs to be fluid, like the rest of life, not rigid, for it to
apply to varied situations. Not to mention, what if a 4% withdrawal rate isn't enough to pay your expenses?
In that case, it isn't even worth considering to start with. This information may be offered with good intentions,
but it isn't actually helpful.
A better use of your time would be to figure out how much you are able to save on a regular basis, how much that will add up to by the time you retire, and then compare that to how much you may actually need (yes, this is exactly what
a financial plan does). This could also be done in reverse order, but the point is to compare what you may realistically need to what you may realistically be able to save. Then you will be in a position to make informed decisions about what it will take to accomplish your specific goals, not the goals that someone else tells you that you should have.
To drive this point home, Fidelity recommends having savings of 10x your income by age 67. If your income is $100k/year, that would require saving $1M for retirement (lasting 25 years?). But many articles and Advisers recommend saving enough to replace 80% of your income. Using the same income of $100k/year, that would require saving $2M ($80k x 25 years of retirement). That's quite a difference in guidance. Let's give them the benefit of the doubt - maybe they are counting on Social Security to help replace some of the income? In that case, you would still need to save $1.5M, even with a $20k/year Social Security benefit. That's still a 50% difference between Fidelity and other "experts". If the "experts" don't agree on a standard for what is needed to save, how accurate will their generic recommendations be for your particular situation?
The moral of the story - tailor your approach to retirement planning to what you need, and what you are capable of accomplishing, and pay no attention to what people who don’t know anything about you are suggesting that you do. Planning for retirement is a personal, fluid adventure with plenty of unknowns, but having a Plan A, and a Plan B, that are designed to meet your particular needs and goals should help you to safely navigate through decades of variables. Wherever you are getting your financial advice from, make sure that it applies to you specifically. Using regurgitated retirement goals intended for everyone, and no one in particular, isn't in your best interest.