What the Retirement Calculators Won't Tell You

We're pretty darn good at adapting, and here's the proof.

Brian Stoffel
Brian Stoffel
Oct 12, 2014 at 7:30AM
Investment Planning

Saving enough for retirement has become a huge topic for today's baby boomers. There's no shortage of retirement calculators out there to help you determine whether you have what you need to enjoy your golden years.

Given the great divide between what the average boomer has saved for retirement and what he or she needs, it's understandable that many believe tomorrow's retirees are headed for absolute disaster.

Many retirement calculators might leave you feeling like your golden years will look like this.  

But there's one factor that even the best retirement calculators will never fully grasp: our ability to adapt.

I have long believed that most middle-class Americans have far more than they need to enjoy a happy existence, so a downward adjustment shouldn't be that difficult. This conviction has now been bolstered by the findings of a T. Rowe Price survey of 1,507 recent retirees. The conclusions are clear: Today's retirees are enjoying retirement much more than you would have guessed, and it's largely due to their ability to adapt.

Living on less
At first, you might believe these folks are enjoying retirement because they still come from a generation that can count on pensions. While that's certainly true to some extent, it doesn't tell the whole story.

For instance, many financial planners will tell you that, in retirement, you'll want roughly 80% of your pre-retirement income. But the survey indicates that today's retirees are bringing in far less than that -- about 66% of their pre-retirement income on average. Here's where that money is coming from.

It's important to note that to qualify for this survey, must have participated in defined-contribution plans (e.g., 401(k)s or 403(b)s) with their employers, and they needed to have a balance of at least $1,000. While that's a fairly low threshold, it eliminates those who lived paycheck to paycheck and didn't contribute, as well as those who did not have access to such plans.

That being said, the income levels we're talking about here are not outrageous. The average retired couple in this survey, before taxes, brought in $58,000 per year -- which is decidedly middle-class. That was also about 34% less income than they were used to bringing in before retirement.

And, contrary to what you might expect, they are still enjoying life
Another way of looking at the average retiree's finances is this: If any of these survey participants had input their numbers into a retirement calculator 10 years ago, they doubtless fell far short of their supposed retirement goals.

Before entering retirement, many people believe they shouldn't rely too much on Social Security, and yet it is by far the most important part of retirement income.

Few, if any, retirement calculators say you should aim to replace just 66% of your pre-retirement income once you finish working. By almost all accounts, these retirees would be branded "failures" if we were measuring their ability to match the expectations that many retirement calculators instill.

So do they feel like failures? Not at all. In fact, 89% of retirees said they were "somewhat satisfied" or "very satisfied" with retired life. Here are some of the reasons why.

The bottom line is that all of us likely have a greater capacity to adapt and make retirement enjoyable than we assume during our working years. That doesn't mean we shouldn't focus on saving for retirement, which obviously remains vital.

Instead, for those who are decades away from retirement, I think a better way of looking at this information is how to apply it to your daily life right now. What types of wasteful spending could you eliminate from your life? What is your level of "enough"? If you were to eliminate all of your expenses and then only add back things that add value, what would you be left with?

The answers to these questions are equal parts philosophical and practical. The main goal is to help you live a more mindful life. But the key, as far as this article is concerned, is that answering these questions can help you save far more for retirement (and require less once you enter it).

Either way, this will help you avoid the anxieties brought on by retirement calculators and focus on living a more sustainable life both now and in retirement.