Unexpectedly Intriguing!
26 March 2019

Is it just us, or is the amount of money that financial professionals recommend you save to fund your future retirement seem really scary large?

It turns out that it's not just us who have that impression. Andrew Biggs recently took on a different version of that question, where he was pretty blunt in saying that yes, for some people, the target retirement savings advocated by financial professionals are crazy high.

This is a reader request, based on an email asking how my recent Wall Street Journal op-ed – which deemed the so-called retirement crisis to be “phony” – jibes with the National Institute for Retirement Security’s (NIRS) study finding that America faces a $14 trillion “retirement savings gap” with a staggering 92 percent of working-age households falling short of their retirement savings goals. So here goes.

The answer is that NIRS dramatically overstates the amount by which households are undersaving for retirement. In fact, the better academic studies – written by well-regarded economists using more sophisticated methods and published in peer-reviewed journals – find a retirement savings gap of $1 trillion or less, by my estimates, out of the more than $93 trillion in total retirement plan assets and accrued Social Security benefits on which Americans rely in retirement.

That seems like a sigh of relief, but it still doesn't answer the question of how much an American ought to save to ensure they can afford to live through their retirement.

Fortunately, Biggs provided additional information that makes it possible to crack that conundrum. Here are the relevant passages.

According to the Social Security Administration, most financial planners recommend that a typical worker retire with an income equal to 70% of his pre-retirement earnings. Robert Myers, a former SSA chief actuary, recommended 70 to 75% for a middle income retiree, ranging from about 90% to a very low earner (making about 25% of the national average wage) to 60% for someone earning the Social Security taxable maximum wage each year....

... former SSA Chief Actuary Robert Myers calculated that a very low wage earner requires a total replacement rate of 90% of his pre-retirement earnings; his Social Security benefit is equal to about 83% of his final pay, getting him about 92% of the way to his goal. For a maximum wage earner Myers recommended a 60% total replacement rate, but the maximum wage earner’s Social Security replacement rate is only 31%, just half his required total.

Believe it or not, these two passages provide enough information for us to reverse engineer a useful portion of the actuarial math that Robert Myers had to have done to arrive at those particular figures. Which given what we do, we then turned into an easy-to-use online tool! [If you're accessing this article on a site that republishes or RSS news feed, please click through to our site to access a working version of the following tool.]

Social Security Data
Input Data Values
National Average Wage (for most recent year)
Maximum Taxable Wage for Social Security (for same year)
Year Social Security Trustees Expect OASDI Trust Fund To Run Out of Money
Percent Benefits Will Be Cut When OASDI Trust Fund Is Depleted
Annual Income and Expected Years of Retirement
Annual Income
Expected Years of Retirement

Estimated Retirement Savings Target
Calculated Results Values
Minimum Target Retirement Savings

Assuming that Robert Myers' estimates of annual post-retirement income are correct, our tool finds that the kinds of retirement income targets that financial professionals recommend are consistent for those who have larger-than-average annual incomes. Which if you think about it, makes sense, because those are the people whose business they're trying to get.

For everyone else, the minimum target retirement savings given by this approach seems to be much more achievable. The real question is whether it is enough, where we recognize that the figure given by the tool should be treated as a minimum target value for retirement savings.

Finally, in creating this tool, we've assumed that the rate of return on retirement savings will at least be equal to the rate of inflation. Over a long period of time, that assumption will almost certainly be incorrect, but if you want to err on the conservative side of the retirement ledger, increasing your expected years in retirement to compensate should do the trick.


Myers, Robert J. Social Security (4th edition). University of Pennsylvania Press, 1993.

Previously on Political Calculations

We've been tackling different methods for determining how much someone planning their retirement would need to set aside and save and built tools to do the math for each. This latest tool is the "With Social Security" variation for answering the question!

Meanwhile, we've also periodically considered personal finance questions involving Social Security....

Image Credit: unsplash-logoMatthew Bennett

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About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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