The full title of Teresa Ghilarducci’s book is How to Retire with Enough Money (and How to Know What Enough Is), and includes the tag line “A Clear Answer in 116 pages.” That is a very ambitious title.
Does she succeed? Mostly yes. The book is 116 pages and does answer the questions posed in the title (how much to save for retirement and how to go about saving that amount) as informed by the author’s significant knowledge of the topic. But I would not call her writing style “clear” necessarily. Funny and blunt, yes. But not always clear.
What I Liked The Most
As the data make clear, too many of us don’t have enough saved to support us in retirement. Without that savings, things will be tough. Or, as Teresa puts it, we will be “living on someone else’s terms.” Yikes.
Not a Fan of IRAs
In Chapter One, Teresa makes a point I hadn’t really considered before: the main retirement vehicles of my working life, the 401(k) and the IRA, suck as retirement vehicles. Blasphemy, right? Surprisingly, no.
As Teresa notes, the rise of these accounts triggered the fall of pensions. Companies quickly realized they could save a lot of money by moving from defined-benefit plans (a.k.a. pensions) that guaranteed a certain level of income to employees in retirement, to defined-contribution plans like a 401(k) that were dependent on the individual to set aside a portion of their income each paycheck, invest it wisely, and resist pulling money out during hard times.
She calls this new reality the DIY-ing of retirement planning and does not like it.
The DIY system works only if average people save voluntarily—sometimes at very high levels—and are savvy enough to find low-risk investments with low management fees. It requires people to keep their heads and not withdraw money during financial downturns or during personal or family emergencies…. To put it mildly, this hasn’t happened.
Why? As she states later in the book, “most of us are simply not equipped to be pension-fund managers for a pension plan of one.”
This Doesn’t Mean We are Off the Hook
Despite being ill-equipped to DIY our retirement, she doesn’t let us off the hook: we still need to plan.
Teresa’s goal is for us to replace 70% of our pre-retirement income so that we can maintain our standard of living. This assumes we have paid off our home, and that our expenses are less because, for example, we are no longer contributing to our retirement or have costly commutes.
Sources of Income In Retirement
Some of that 70% will come from Social Security. How much will depend on what we earned when we were working and how soon after age 62 we start taking it (the amount we receive each month will be bigger the longer we wait because it’s assumed we will receive it for a shorter period of time…because we’ll be dead).
The lower our income during our working years, the bigger the percentage Social Security will replace but since the most someone could receive is currently around $31,000, it’s unlikely we will start reading about Social Security millionaires any time soon (unless they won the lottery which she stresses is NOT a retirement plan).
Income from continued employment could be another source of income but, she notes, planning on being able to continue to work is risky. “Ultimately, no matter how much you want to work later in life, a job may not be there for you.” In addition, we may not be healthy enough to continue working, or care-taking for a loved one may leave us with no time to hold a job.
Our savings make up the final source of retirement income. At a minimum, she suggests saving 8 times our salary although she admits her personal goal is to save around 15 times, given the high costs of healthcare, even with Medicare.
(As an aside, my personal goal is closer to her 15 times goal too.)
Savings Rate and Investment Strategy
Since we can’t control the market, she focuses on the two things we can control: our savings rate and choice of investment fund.
To determine what you need to save for retirement (and thus your savings rate), she suggests using one of the online calculators out there (her favorites are the one on the AARP website and the ones on dinkytown.net). She recommends being conservative when it comes to predicting inflation and market returns because saving too much is preferable to saving too little.
Her advice on what funds to invest in mirrors the advice of most reputable retirement planners: a mix of low-cost stock and bond index funds that reduce your risk by giving you broad market exposure (the investment portfolio I outline here is an example of this approach).
In one of the more light-hearted sections of the book, she states that if you have a “Guy” recommending a different strategy, you to dump him as soon as possible. “Honestly, you would be better off earning the Boy Scouts’ personal finance merit badge….”
Don’t Forget To Vote
Finally, she stresses staying engaged with your representatives in Congress and your state house.
If your retirement is going to be dependent on Social Security and Medicare, you need to ensure both of those programs are still around when you retire and that means voting for candidates who will sustain them.
What I Liked the Least
One of the few things I didn’t like about the book is the extent to which Teresa excuses today’s workers from being responsible for any of the retirement mess the U.S. is in (at one point, referring to them as “victims”).
I agree that the odds are not in favor of most people being able to fully fund their retirement accounts, especially those with lower incomes. But even if you excuse the dismal savings rates, we need to own some of the other bad money decisions we are making and stop making them.
For example, how much better would the situation be if only we could get our spending under control (I include pre-debt payoff me in this group). To be fair, several times throughout the book she addresses paying off debt. But I don’t think she places the emphasis on living within our means that she could.
And getting back to what I mentioned in the beginning, I don’t think she covers these topics as clearly as she could. I learned a lot but someone who is more of a beginner might find it a slog.
What Did You Think?
Have you read How to Retire with Enough Money (and How to Know What Enough Is)? Did it help you figure out how much to save for retirement? Let me know in the comment section below.
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