I heard this on Marketplace.org last night and thought it was worth sharing. It seems the old “rule of thumb” of  saving 10% for retirement needs to be updated:

According to both Fidelity and research done by Aon Hewitt and the University of Georgia, in order to maintain our standard of living post-retirement, we need to have saved at least 11 times our income by age 65. That means saving 15 percent to 17 percent of income across your working life…Another  reason we’re not saving enough? We were really wrong for decades about how much “enough” is. In the booming market years of the ’80s and ’90s, people typically saved some 3 percent of  income each year and counted on employer savings plans and Social Security for the rest. Two recessions and almost a decade of sluggish economic growth have offered a reality check. We need to save more.

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Of course, the key assumption in any analysis of long-term outcomes like this is…investment returns. Even a 1% difference (say, instead of earning 8% per year, an investor earns 9%) has a dramatic impact on the size of one’s nest egg. While we cannot control the returns on the stock market, we CAN control how much we save.

Check out this NGPF Question of the Day: How Much Would I Need to Save Monthly to Have a $1 Million When I Retire? Or maybe have students do a Web Quest to see the variety of answers to the question “How Much Should I Save For Retirement?” It is important for them to see even with a simple question like this, experts have differing opinions.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.