KnowHow Archive

Plan Sponsor Guide Participant Guide

Trip Planner

Getting from here to there is just the beginning

Yogi Berra once famously said, "If you don't know where you're going, you won't know when you get there." Of course, when it comes to retirement, we tend to have some idea of when we get there. What we lack is a solid appreciation for whether we will be able to afford living there once we arrive.
The process of figuring out how much you need to save for retirement may not be rocket science, but it certainly bears a striking resemblance to those ­machinations. Little wonder that survey after survey shows that participants are disinclined to undertake the process.
There are many sophisticated financial ­calculators available that can offer a relatively precise, inflation-adjusted assessment of the replacement income result for individual participants. However, for many participants, the high-tech approach can obscure the reality of the calculation. For others, the sheer size of that number can become exactly the kind of overwhelming, daunting objective that results in a "do it later" reaction.
This month, we use the analogy of planning for a vacation trip to help convey a sense of the need for preparation—and we use a remarkably simple (perhaps simplistic) "calculator" that can help participants focus on the critical process of figuring out how much they need to have saved for retirement, rather than just focus on accumulating the amorphous "as much as possible."
Unfortunately, participants tend to focus on how much they can "afford" to set aside for retirement, rather than thinking about how much they will have to have set aside to live on in a retirement that can be two or even three decades long.
Studies repeatedly show that participants who have taken the time to try to figure out what they need for retirement are nearly always more confident about their ­prospects—and feel better about their retirement savings program generally. However, getting them to take the time to "do the math" can be a real challenge.
This month, we try to put that goal in perspective: the need to have set aside 20 years of paychecks for that "rainy day" that we all hope turns out to be sunny and relatively carefree. As always, we look forward to your comments.