10-27-2013, 02:22 PM
Just to be clear, when you say savings to spending ratio, you mean the total portfolio size on the day of retirement divided by the annual amount of projected spending?
I've got no examples in mind, but I feel like when I read those "pop" retirement savings articles, they are discussing the need to save 10 to 15 times your annual salary, rather than 10 to 15 times your expected sending in retirement.
In any case, I think you are right that such guidance usually (necessarily?) is based on hugely oversimplified assumptions. Also, what might account for the discrepancy you note is that many financial writers who write such basic articles seem to use "historical" market average returns of 8 or 10 percent at face value. With rosy assumptions like that, it would be easy to arrive at a multiple of 10 to 15, even with a healthy allocation to bonds.
I've got no examples in mind, but I feel like when I read those "pop" retirement savings articles, they are discussing the need to save 10 to 15 times your annual salary, rather than 10 to 15 times your expected sending in retirement.
In any case, I think you are right that such guidance usually (necessarily?) is based on hugely oversimplified assumptions. Also, what might account for the discrepancy you note is that many financial writers who write such basic articles seem to use "historical" market average returns of 8 or 10 percent at face value. With rosy assumptions like that, it would be easy to arrive at a multiple of 10 to 15, even with a healthy allocation to bonds.