Independent
Thinks s/he gets paid by the post
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- Oct 28, 2006
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According to research conducted by a couple of University of Wisconsin professors:
The "wealth target" is the amount that people should have saved by this point in their lives in order to maintain their lifestyle after retirement.
I think this is consistent with other threads on this forum. The professors say that the 75% rule is off the mark. It turns out that children are an important factor:
I like this research because it supports my long standing claim
Basically, so little of your gross income goes to support you and your spouse while your children are at home, that if all the "saving" you do during those years is to make payments on the mortgage you are probably saving enough to continue that lifestyle in retirement. You build some financial assets after the kids are gone, get social security, and you can still afford peanut butter. (We actually did a little better than that, we eat a lot of pizza).
I've said that SS alone is enough to provide the two of us the same consumption in retirement that we enjoyed when we had three kids at home. I wonder how many other people think they could do the same.
We looked at two generations born before the original HRS cohort, the original HRS cohort, and two generations born after, the so-called War Babies (born 1942 to 1947), and the Early Baby Boomers (born 1948 to 1953. ... Households in every birth cohort were overwhelmingly at or above their optimum wealth targets. For the youngest group, the numbers were slightly less favorable. But even so, only 10% of that cohort fell short of their optimum target.
The "wealth target" is the amount that people should have saved by this point in their lives in order to maintain their lifestyle after retirement.
I think this is consistent with other threads on this forum. The professors say that the 75% rule is off the mark. It turns out that children are an important factor:
We can illustrate the finding by giving the example of two couples, who are otherwise identical, but one has five kids and the other has no kids. The couple with five kids is eating peanut butter, and the couple with no kids is going to restaurants. ... It takes far fewer resources to maintain the living standards of the husband and wife with the five kids after the kids have left the house than it does for the couple with no kids. ... Once they have left the nest, the wealth needed to maintain the living standards of the adults remaining in the household is substantially less than what is needed for the childless couple.
I like this research because it supports my long standing claim
Basically, so little of your gross income goes to support you and your spouse while your children are at home, that if all the "saving" you do during those years is to make payments on the mortgage you are probably saving enough to continue that lifestyle in retirement. You build some financial assets after the kids are gone, get social security, and you can still afford peanut butter. (We actually did a little better than that, we eat a lot of pizza).
I've said that SS alone is enough to provide the two of us the same consumption in retirement that we enjoyed when we had three kids at home. I wonder how many other people think they could do the same.