How Much Do You Need?

During their working lives most people are faced with the following question, “How much should I save for retirement?”. This is a great question but before you can answer that question, several other questions deserve to be asked.  Two questions in particular are, “What lifestyle do I/we envision in retirement?”,  and “How much income will be needed to support that lifestyle?”.  

The answer to the question, “What lifestyle do I/we envision in retirement?” isn’t as easy as it seems.  An New York Times article by Ron Lieber examines the difficulty of answering this question, especially for those who are more than 10 years from retirement.  Mr. Lieber’s article describes research that examines personality, values, and preferences.  The assumption is that these traits are key factors in determining what type of life we lead, both pre and post career.  As we project what our future lifestyle will look like, we use our current personality, values, and preferences to make that projection.  This is logical. If we envision a future in opposition to our current personality, values, and preferences, we would be faced with a severe disconnect between how we’re living our lives and what we truly prefer and value.  To believe otherwise would lead to continuing questioning and the resulting disorientation that results from continually questioning ourselves.  In other words, paralysis by analysis.

Sounds logical right?  The problem is that the research shows that our personality, values, and preferences change as we go through our lives.   This change in all three is generally unanticipated.  That makes envisioning our lives, and precisely planning for that vision, difficult to do over longer periods of time.  As Michael Kitces said in the article, “…most people more than 10 years from retirement have no idea what they’re going to want to do with themselves”.

Does this mean that planning for our retirement is pointless since we don’t know what type of retirement we’re planning for?  Not at all.  Next week we will look at research that helps us answer the question, “How much to save for retirement?”

Read the NY Times Artiicle