Tags: retirement | savings | Boston College | study

Boston College: Retirement Savings 'Shortfalls a Growing Problem'

By    |   Monday, 06 April 2015 07:00 AM

You've probably read about many studies showing our retirement savings are inadequate. Here's another.

This one, written for Boston College's Center for Retirement Research by Alicia Munnell, Matthew Rutledge and Anthony Webb, looks at both sides of the coin.

"Federal Reserve data show that retirement preparedness has been declining over time, but studies on the level of preparedness offer conflicting assessments," they write.

"The National Retirement Risk Index (NRRI) finds half of households are 'at risk,' while studies of optimal savings suggest less than one-tenth will fall short."

So who's right?

"The optimal savings results depend crucially on two assumptions: households spend less when their kids leave home (the NRRI assumes no decline), and households plan for declining consumption in retirement (the NRRI assumes steady consumption)," the report states.

"While the issue remains unsettled, the Federal Reserve data are consistent with the NRRI finding that retirement shortfalls are a growing problem."

Meanwhile, for years a rule of thumb for retirement has been that you can safely withdraw 4 percent of your investment portfolio for spending each year and never deplete your investment portfolio.

But that rule doesn't hold anymore, experts say. Current rates of investment return mean the 4 percent method "gives you a 15 to 30 percent chance that you will run out of money," David John, senior strategic policy advisor at the AARP Public Policy Institute told CNBC.

So how can you come up with a drawdown rate? It's not easy. Few retirement spending calculators are available, CNBC reports. "When it comes down to retirement income, you can find annuity calculators, but you really can't find anything that's more complex," John said.

In general, rules of thumb are very convenient for planning your retirement finances, but they also are often wrong. So you need to take any rule you hear with more than a grain of salt.

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You've probably read about many studies showing our retirement savings are inadequate. Here's another. This one, written for Boston College's Center for Retirement Research by Alicia Munnell, Matthew Rutledge and Anthony Webb, looks at both sides of the coin.
retirement, savings, Boston College, study
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2015-00-06
Monday, 06 April 2015 07:00 AM
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