Author Topic: Recommended Savings Rate  (Read 1030 times)

rudged

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Recommended Savings Rate
« on: March 04, 2019, 09:19:26 AM »
Over the past few years Iíve read a lot of personal financial advice books and blogs, and Iíve been struck by the diversity of advice regarding what you should aim for as your savings rate. Iíve made a list below. For some individuals, the number quoted is what they identify as the absolute minimum; for others (e.g. MMM) it is an ideal to strive for. Some were a little difficult to classify Ė e.g. The Wealthy Barber and the Richest Man in Babylon both throw out the figure 10%, but later clarify that you need to save still more for retirement. So they should probably be read as advocating a higher savings rate. All Your Worth, in contrast, all but implies in its emphasis on balance that 20% is both the least and the most you should be saving. Some interesting trends : more recent books advocate higher savings rates. There are also a couple of self-proclaimed financial gurus (e.g. Suzy Orman) that donít appear to have a specific figure in mind.

Let me know if you have additional examples, or see some trends I have not.


10%: Bamford et. al. (1992) The Consumer Reports MONEY BOOK How to Get It, Save It, and Spend It Wisely; Hunt, M. (1997) The Complete Cheapskate

10+%: Clason, George S. (1992 [1926]) The Richest Man in Babylon; Chilton, D. (1998) The Wealthy Barber 3rd edition; Morris, K. Siegel, A. & Morris, V. (1995) The Wall Street Journal Guide to Planning Your Financial Future; Pond, J.D. (1992) 1001 Ways to Cut Your Expenses.

15%: Van Ness, R. (2013) Common Sense Investing; Ramsey, D. (2003) Total Money Makeover

15-20%: Farrell, C. (2010) The New Frugality ; Stanley, T. & Danko, W. (1996) The Millionaire Next Door

20%: Warren, E. & Tyagi, A. (2005) All Your Worth

30%: Yeager, J. (2013) How to Retire the Cheapskate's Way; Ghilarducci, T. (2015) How to Retire with Enough Money

50%: Collins, JL. (2016) The Simple Path to Wealth.

65%: MMM (2012) The Shockingly Simple Math Behind Early Retirement.

As much as possible: Robin, V. and Dominguez, J. (2008) Your Money or Your Life. Fisker, J. (2010) Early Retirement Extreme

Malkynn

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Re: Recommended Savings Rate
« Reply #1 on: March 04, 2019, 09:41:59 AM »
It's not so much that there's a trend in terms of savings rate, it's that it depends on whether or not the advice is for traditional retirement age or early retirement.

A LOT of retirement literature presupposes that you will work a full length career.

remizidae

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Re: Recommended Savings Rate
« Reply #2 on: March 04, 2019, 09:48:03 AM »
Some readers will just tune out if you tell them to do things they believe to be impossible. I'm sure a lot of these writers would agree that more than 20% is ideal, but they're trying to reach their audience.

Also, consider expected audience: the people reading MMM or Ramit Sethi tend to be higher-income than the people reading The Complete Cheapskate or Your Money or Your Life or The Simple Dollar.

JZinCO

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Re: Recommended Savings Rate
« Reply #3 on: March 04, 2019, 11:12:01 AM »
It's hard to compare when the accompanying information isn't provided such as 'to achieve what sum?' or 'for how long?'. Often that information is neglected, though some resources will tell 'You need to save X% for X years in order to replace X% of your income, assuming growth of X% per year, which it typical of the following asset allocation...'.

If a savings rate is suggested without accompanying information, it's completely arbitrary and useless for financial planning.

rudged

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Re: Recommended Savings Rate
« Reply #4 on: March 04, 2019, 12:18:31 PM »
It's not so much that there's a trend in terms of savings rate, it's that it depends on whether or not the advice is for traditional retirement age or early retirement.

A LOT of retirement literature presupposes that you will work a full length career.

Certainly most of the older books are thinking of individuals who are pursuing a traditional retirement age, but Ghilarducci, T. (2015) How to Retire with Enough Money, has this demographic in mind as well, and she advocates a 30% savings rate in contrast to the 10-15% rates quoted above for traditional retirees. Yeager (30%) is certainly an advocate of early retirement, yet his suggested minimum savings rate is quite a bit lower than MMM or Fisker.

thd7t

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Re: Recommended Savings Rate
« Reply #5 on: March 04, 2019, 12:29:24 PM »
This list is pretty interesting.  It's immediately apparent that the authors see work/life energy/effort in different ways. 

A small note: Your Money or Your Life was published in 1992.

reeshau

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Re: Recommended Savings Rate
« Reply #6 on: March 13, 2019, 09:51:43 AM »
It's not so much that there's a trend in terms of savings rate, it's that it depends on whether or not the advice is for traditional retirement age or early retirement.

A LOT of retirement literature presupposes that you will work a full length career.

Certainly most of the older books are thinking of individuals who are pursuing a traditional retirement age, but Ghilarducci, T. (2015) How to Retire with Enough Money, has this demographic in mind as well, and she advocates a 30% savings rate in contrast to the 10-15% rates quoted above for traditional retirees. Yeager (30%) is certainly an advocate of early retirement, yet his suggested minimum savings rate is quite a bit lower than MMM or Fisker.

It's not just the length of time, but also the assumed income level you achieve.  If you are a median wage earner retiring at a traditional time, then Social Security can play a significant part in funding your lifestyle.  As an early retiree, or someone earning $100k plus, its impact is greatly reduced.