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The other day I linked to a blog post from US News with some very grim numbers from a report published by the National Institute on Retirement Security (NIRS) about how much money Americans have put away for retirement. The numbers are really shocking.

A reader on the Seeking Alpha version of my post left the link to the actual report [pdf], which although grim too is an interesting read. It included the following table;

The Fidelity column provides a guide of where its research says you need to be at various ages so a 50-year old should have 4 times their income to be on track. Aon Hewitt simply says you need to have 11 times your income at age 66 to be able to retire at 67.

For some, the numbers in the Fidelity column will seem ridiculously out of reach and for others not so bad. Even if the numbers do seem out of reach I think there is something encouraging here from a behavioral standpoint for people able to employ some discipline in their lifestyles.

Often in retirement planning and retirement articles there is an assumption that expenses will go down. This long-held assumption has drawn closer scrutiny in recent years as not being true. Early on in retirement people tend to try to travel more and later in retirement healthcare expenses tend to increase.

An assumption that you will be able to cut your expenses by X% on day one of retirement could be immediately plan altering.

The behavioral opportunity comes from the extent to which people can start living below their means right now. It is obviously easier to assess spending habits now while a full income is still coming in and then slowly (if needed) ease into spending less every month versus going cold turkey on day one of retirement.

Also there are a couple of "expenses" that will go down on their own. If you do retire fully or switch to some sort of hobby monetization then your active income will go to zero or reduce, which means paying less social security. If you make the same money from your hobby then you have a whole lot less to worry about.

You also are less likely to need to save money every month. Obviously if active income goes to zero then you would not be putting anything away (although you might spend less).

Reducing spending is not easy but you have between now and when you plan on retiring to figure it out. Saving for a comfortable $40,000 lifestyle is far less of a daunting task than saving for a $110,000 lifestyle; $440,000 versus $1,121,000 based on Aon Hewitt's 11 times.

There are still things like one-off expenses to consider along with the other complicating factors we've written about over the years.

This is a viable solution for some people but it falls squarely on the individual to solve this on their own.

Source: Grim Savings Numbers