Americans are facing serious problems accumulating reasonably sized nest eggs for their retirements. Depending on which articles you read, Americans might be having trouble accumulating any nest egg for the future. There are so many stats from so many sources lacking consistency in terms of groups studied and data collection methods that I think they lack value in terms of trying to understand specific numbers. But there can be no doubt that collectively we are horribly under saved for the future.

Another dynamic that exists in this conversation is the rule of thumb about how much income a retiree must replace from what they earned while still in the work force. Often this is expressed as needing 70-80% of pre-retirement income and usually the people saying this mean gross income.

For years I’ve been trying to debunk the concept of needing 80% or even 70%. This really boils down to simple math and the fact that no one ever lives on 80% of their gross when they were working. Gross income minus FICA minus Federal tax minus state income tax minus (hopefully) retirement savings will leave most people below 70%. Here’s an old article from MarketWatch that makes the same point.

Chances are most people stop saving for retirement once they retire which then takes the need below 60% (the above assumes a 10% savings rate). Anyone smart/lucky enough to time their retirement with paying off their mortgage with their retirement date could reasonably lop another 20% off, needing to replace just 40% of their gross income.

For a couple with a combined income of $100,000 that would obviously be $40,000. If each spouse earns $50,000 they would get $1431 per month (assumes each spouse is now 55 and retiring in March 2026) which adds up to $34,344 so their portfolio needs to generate $5656. Using the 4% rule this example needs $141,400 to fill the gap.

The point is not that anyone only needs to save $141,000 for a long, long list of reasons. Obviously the example relies on Social Security delivering as advertised which is not a bet I want to make, it leaves no margin of error/safety for the unlimited possibly life circumstances related to job security, health issues, family issues, poor market returns and on and on. There is also no room in those numbers for the unbudgetable one-off expenses that seem come every month like new tires, a vet bill or god forbid needing both toothbrush heads and razors in the same month. Additionally, there would not be much room for fun things like traveling or certain hobbies; even just spoiling grandchildren would be difficult.