One time-honored rule of thumb suggests that should save 10% of your income for retirement. But that percentage might be too high or too low for many people saving for retirement, according to a new study.
Indeed, your saving rate should be based on your household income, what probability of success you want, and the age at which you start saving according to Dimensional Fund Advisors, a mutual fund firm based in Austin, Texas.
“It is important to note that simple rules of thumb do not work for many people,” wrote the authors of the paper, Massi De Santis, a senior research associate at DFA, and Marlena Lee, a vice president on DFA’s research team. “When planning for retirement, income uncertainty can be substantial, so a one-size-fits-all solution is unlikely to work.
”Why do investors take risks?
MarketWatch’s Chuck Jaffe was recently asked a question so simple it startled him. He joins MoneyBeat to discuss.
In an interview, Lee said the saving rate that works well on average does not work well for people with steep income trajectories or high income variation over their working life—the very people who may need to rely more on personal savings.