Is there really a retirement savings crisis?

“No one seems to be getting it right,” says Laurence Kotlikoff, professor of economics at Boston University and co-developer of ESPlanner, a financial planning program designed to help individuals get ‘it’ right throughout their lives.

“It takes more than a few questions to calculate how much a person needs to save for retirement,” he says referring to the bare-bones online retirement calculators many use for this task.

Because these calculators treat all retirement goals alike without regard to lifestyle preferences or individual goals, he asserts they can produce savings targets four to five times higher than necessary.  By inflating the targets, it can cause people to give up because it seems hopeless or over save and “squander their youth instead of their money,” says Kotlikoff. 

Ty Bernicke, a certified financial planner in  Eau Claire, WI, has raised similar concerns about inflated savings targets based on some of  his clients’ experiences at retirement. “I am not suggesting people should not save, but that they should have a better idea of what they want to do in retirement so they save the right amount,” he explains.  “People get fixated on the benchmarks they read about, but you can not benchmark across populations,” he adds. “Some can take early retirement and live the rest of their lives comfortably on a $1 million nest egg.  For others, that would not last them five years.” 

While the benchmarks may be too high for some of Bernicke’s Mid-Western clients, Arthur Stein, a certified financial planner in Bethesda, MD, thinks they are too low for his clients who are hoping to maintain their pre-retirement  lifestyles in the Washington D.C. area. “This is why we plan for specific situations not national averages,” he says.

“Telling people unilaterally to ‘save more’ is a good sound bite, but you really need to isolate the correct assumptions for each individual,” concurs Rick Brooks, a certified financial planner with Blankinship and Foster in Solana Beach, CA.   By contrast to the instant savings goals calculators, he spends two hours with a client in their first meeting, then another ten to fifteen on analytical work before he generates a retirement savings strategy.

Like many planners, his process focuses on answering questions  like: What does retirement mean to you?  Do you want to work? Where do you want to live? How do you want to spend your time?  What do you think you will be spending your money on?

Age, assets and income help determine how clients will achieve their goals. But like the other financial experts, he warns against relying on them exclusively when determining what retirement savings goals should be.  Instead, when using basic calculators treat the result as a starting point not as retirement planning solution.

Regardless of whether there is a retirement savings crisis in the aggregate or not, to avoid a personal one still requires consistent savings. Kitces also advises that you maintain control over both pre- and post-retirement spending.  Having a viable plan to achieve personal goals also helps improve the odds of ultimately getting the savings part of whatever calculation is used, right. 

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