AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Dear Scott,

 I understand from a fairly reputable source that you have made the suggestion that , you believe, advisors tend to advise most clients that they should save more for retirement. However, you believe that, most clients really do not have to save as much as they have been told, and that they should enjoy life (and their money ) more.

I would suggest that you review the recent Hewitt Associates study that once again confirms that most Americans fall far short of the asset base needed to continue their standard of living not only into retirement but through retirement.

As an advisor, I prefer to err on the side of caution.

And , assuming that you now have some liability for the advice you give, you might consider doing the same-

MRB

I'm not Scott but I'm clearly much more familiar with his writings than you are.  I suggest you read Spend 'Til the End to understand much of what Scott writes and the basis for it. 

I am assuming the the Hewitt Associates study you cite is the tried and true measurement of how well we are saving to replace 80% or so of our preretirement income.  If so, I'm also am among those who won't replace 80% of their income from my portfolio.  However, I spend about 50% of my income now.  The rest goes into saving or to pay my SS/medicare tax.  This is also before I do a little downsizing of my house.  I guess I could work another 5 years to replace the income I'm not spending now but what's the point?

As far as being cautious, I've never known anyone who was told by their FA that they had enough money to retire.  I assume the fees from an ever growing portfolio encourage caution on their part.  It's also a safe bet that if someone works until the day they die they will have plenty of money for their retirement.

My financial plan is a solid post-retirement budget and a reasonable estimate of a conservative portfolio's performance.  I use FIRECalc for my estimated performance but control some of my risk by knowing my retirement budget can be reduced significantly without impacting my ability to be independent.

Both are valid arguments but one has little to do with the other.

The Hewitt Associate study shows how Amaricans aren't saving enough, however enough is less than what advisors are estimating.

MRB,

I haven't seen the Hewitt study so I can't comment on it. If it takes the conventional route and measures retirement adequacy by assuming that you need 70 to 85 percent of your pre-retirement income to maintain your standard of living in retirement, it suffers from the fundamental flaw of most financial planning:

YOUR PRE-RETIREMENT STANDARD OF LIVING IS NOT THE STANDARD OF LIVING YOU HAD MOST OF YOUR ADULT LIFE.

The conventions of planning ignore certain major life realities such as procreation and the resulting support of children or the existence of debt service. Both reduce the portion of our income that is available to support consumption throughout most of our adult lives. As a consequence, the amount of money we need to save is lower than commonly estimated.

This doesn't mean that EVERYONE is oversaving. Millions of Americans are clueless, driving toward a cliff because they save little or nothing and blow the major opportunity for saving when the children are on their own by upgrading their spending.

But most of the people who visit financial planners are probably aware enough that their savings will be sufficient or in excess of what they need to maintain their adult standard of living when they retire.

Here, for instance, is a recent column about how it works out for a household with a single earner with a $100,000 income. That's the top of the Social Security wage base which means that 94 percent of all earners have that income or less. While a single earner isn't the same as a dual earner, it's safe to say that the vast majority of households in America are in a similar position.

http://assetbuilder.com/blogs/scott_burns/archive/2008/06/06/the-n-factor-and-retirement-planning.aspx

Scott