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William Bernstein on How Much You Should Have Saved for Retirement

By JLP | September 29, 2012

Interesting interview with William Berstein in MONEY.

Tell me what you think of this piece from the article:

So how should I be investing near and after retirement?

You want to end up with a portfolio that matches your liabilities, meaning the amount you’ll need to spend in retirement. The rule of thumb I came up with, based on annuity payouts and spending patterns late in life, is that you should save 20 to 25 times your residual living expenses — that is, the yearly shortfall you have to make up after Social Security and any pension.

This portfolio should be in safe assets: Treasury Inflation-Protected Securities, annuities, or even short-term bonds.

Anything above that, you can invest in risky assets. That’s your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn’t do well, at least you’re not pushing a shopping cart under an overpass.

That’s a pretty sizable chunk of change. Based on that number and NOT including social security, my wife and I are about 10% to 20% of the way there. OUCH! Granted, my goal is lofty. We’ll do what we can and not worry about it.

I also think Bernstein is pretty conservative. I don’t see a lot of people having that much money by the time they retire.

Thoughts?

Topics: Investing, Retirement Planning | 9 Comments »


9 Responses to “William Bernstein on How Much You Should Have Saved for Retirement”

  1. Jack Says:
    September 29th, 2012 at 11:43 am

    I think his admonition to such conservative investments is short-sighted. I fully intend to live thirty years in retirement. You have access to the S&P data. Look for yourself. If you take out 4% the first year, and increase that amount by the CPI every year, under no historical scenario would one run out of money even if everything were invested in the S&P 500.

  2. clocks Says:
    September 29th, 2012 at 12:05 pm

    Personally, I hoping to have enough to just live off dividends, without having to withdraw from the principal. That’s a safer bet to make your money last, assuming you can reach the high nest egg needed.

  3. JLP Says:
    September 29th, 2012 at 12:28 pm

    Although I won’t disagree with you, Jack, we only have data going back to 1926. It’s not enough to say that because something didn’t happen that it’s proof it couldn’t happen in the future.

  4. BG Says:
    September 29th, 2012 at 12:29 pm

    Jack) aren’t you saying the same thing as Mr. Berstein? To live the first year off of 4%, you need 25x saved up first…

  5. mercyn Says:
    September 29th, 2012 at 2:53 pm

    Assuming the safe assets are TIPS, fixed annuities and short term bonds, I doubt there is any way the portfolio will keep up with inflation. The amount of additional income from rising TIPS, annuity and bond rates will lag and the long-term result will be a loss of purchasing power.

  6. Stacey Says:
    September 30th, 2012 at 1:55 pm

    All bets will be off if ss becomes means-tested. Then we’ll be stuck in the middle: too much saved to maximize our ss checks, but too little saved to live the retirement lifestyle we wanted, esp. a la the “formula” Mr. Berstein advises…

  7. Miguel Says:
    September 30th, 2012 at 6:20 pm

    Sounds like the ole 4% rule to me.

    The inverse of .04 = 25x

    Many pundits believe the 4% rule to be overly conservative. I think it’s too simplistic to suit my own goals, but I can see how simplicity can be useful when trying to get people to pay attention.

    I’m certainly not counting on SS to contribute more than enough to cover the occasional night out, so never factor it into my calc. And a pension? Oh, right that mythical concept I’ve read about but can only imagine.

    Nope it’s just gonna be me and the wife, whatever we can earn in old age, whatever we’ve got saved up and invested, and whatever assets we can convert to cash either by sale or by rent (i.e. real estate).

    Wife thinks we’ll have to build an ark for our friends and family because 99% of them aren’t likely to come anywhere close to having enough by the time they need it. Their only hope is the lottery, or a nice fat inheritance (unlikely in most cases).

    Back to the topic, the most successful retirees I’ve seen have been some of my neighbors who stocked up on rental properties early in their lives – or – folks with gubment pensions – or – best of all – BOTH!

    Inflation has been their friend. Think about it.

  8. Miguel Says:
    September 30th, 2012 at 6:40 pm

    Wow, I looked at the full article. I don’t know who Bernstein is hanging out with, but it ain’t the average working Joe. He talks about hitting “the number” when you’re in the middle of your working career, say by age 45 (if you’re lucky). I’m in that age range and I’m one of the very few people I know (who isn’t a CEO or expects a generous pension) to come anywhere remotely close to the number by age 45.

    Also, this bit of wisdoms struck me as incredibly short-sighted:

    “Young people should get down on their knees and pray for a brutal bear market at the beginning of their savings career, because that’s going to enable them to buy a large number of shares cheaply. ”

    Huh…. no mention of the brutal recession and lack of job opptys that usually accompany a “brutal bear market”. Brutal downturns usually affect those in the early years of adulthood the worst. I should know – it took me forever to get my life off the ground in the early 90’s bust. And I did not have any cash to load up on cheap stocks – more like paying rent and student loans sucked up all of my paycheck and then some.

    I get that timing is important, but a silly statement – I hope it’s just the editing that’s making him sound a bit out of touch with reality.

  9. Jack Says:
    October 2nd, 2012 at 2:48 pm

    @BG — yes on the 4%, no on the choices of asset allocation.

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