Linda Stern and rules for retirement savings

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My favorite personal finance journalist is Linda Stern. Her articles (distributed via Reuters, I believe) are practical and clear, and they avoid so many of the traps of personal finance writing: parental/disciplinarian voice, overpromising, false precision, mind-numbing boredom, and so on. She just tells it like it is and lets you know when there’s no good answer for a particular fear. How refreshing!

Her latest column, on planning for retirement, is a great example of this. You should read the whole piece — it’s a great, simple introduction to thinking about how much you’ll spend during retirement, and building a retirement savings plan from that. Here, though, is a snippet that is characteristic of her style:

Don’t waste too much time mulling over those retirement rules of thumb that seem to pop up everywhere. They’ve never been very useful, but changes in the way people live and work make them even less so.

Here are a couple of rules debunked.

— That 80 percent spending maxim. Once you start planning for retirement, you usually run across this “rule”: “You’ll need roughly 80 percent of your pre-retirement income once you retire.”

That’s a ridiculous figure, pulled out of thin air. Investment companies say they often use that number to “help” people who don’t have any idea of how to plan their retirement savings. But it mainly helps to scare people into thinking they have no hope of saving enough for retirement.

In truth, they may spend more than that in the first couple of years after they stop working, but they’re likely to spend far less, on average, over their entire retirement period. By the time they are 75, they’re likely to be spending about half of what they did when they were 50, according to the Labor Department’s survey of consumer spending….

I love that she debunks the very general saws financial articles typically throw around, and then backs up her assertions with better numbers from reputable sources. When you think about how easy it is to fall into the “personal finance traps,” it makes what she does that much more impressive. Definitely worth reading every week.


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