by Back in 2009, I looked at the implications of the GFC for retirement income, working on the assumption that retirees could safely aim for a 2 per cent real rate of return. The bottom line was that current workers need double contributions, to 20 per cent of income and shift the work-retirement balance, so that you work from 25 to 65 to finance an expected 20 years of retirement income. Since then, the real rate of return on safe investments like government bonds has fallen to zero (maybe below). That means that you can treat your net worth at retirement as being equal to the amount you have to live on for the rest of your life. In particular, if you work from 25 to 65 and want finance 20 years of retirement income holding your consumption constant, you need to save one-third
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Back in 2009, I looked at the implications of the GFC for retirement income, working on the assumption that retirees could safely aim for a 2 per cent real rate of return. The bottom line was that current workers need
double contributions, to 20 per cent of income and shift the work-retirement balance, so that you work from 25 to 65 to finance an expected 20 years of retirement income.
Since then, the real rate of return on safe investments like government bonds has fallen to zero (maybe below). That means that you can treat your net worth at retirement as being equal to the amount you have to live on for the rest of your life. In particular, if you work from 25 to 65 and want finance 20 years of retirement income holding your consumption constant, you need to save one-third of your income.
When I wrote in 2009, the general view was that we were saving too little, so the increase in required savings seemed like a good thing for the economy in general. Now, the reverse is probably true.