Skip to main content

< WatchBlog: Following the Federal Dollar

Retirement Savings Strategies Are Not One Size Fits All

Posted on March 22, 2016
People are living longer and spending more time in retirement. In addition, individuals are now expected to ensure their own retirement financial security. It’s no wonder that planning for retirement has become one of the most important financial moves you can make.  Think you know how much you need to save? Check your math against the retirement savings factors we recently reviewed. Back of the envelope Figuring out how much to save can be complicated and time consuming. Many people may turn to retirement calculators and other online tools and resources. Retirement calculators can suggest or use “target replacement rates.” This is how much of your pre-retirement income you need in retirement to keep your current standard of living. Most economists and financial planners generally agree that retirees need less money in retirement than while working since they will probably have lower expenses—for example, no more commuting costs.

Figure 4: Many Target Replacement Rate Recommendations Are between 70 and 85 Percent(Excerpted from GAO-16-242)

Everyone’s unique Regardless of what the experts say, how much money you’ll need in retirement depends on you. When planning ahead, consider how these 3 expenses can change:
  • Housing. Regardless of age, housing costs average about a third of household’s total expenses. Even so, housing costs can change over time—including before and during retirement. For example, paying off a mortgage or downsizing can save you money, while moving to a more expensive area or needing specialized senior housing can increase your costs.
  • Health care. Health care costs can go up or down. However, older households tend to spend more on health care than younger ones. In addition, insurance premiums and out-of-pocket costs can change over time.
  • Lifestyle. How do you want to spend your retirement? While you may not need to pay for your commute, with more free time you may spend more money on entertainment, dining out, or travel. Retirees may be able to stretch their dollars with senior discounts, but going out can still add up. Or you may choose a simpler lifestyle in retirement, staying in and spending less.
User beware Knowing generally how much you need in retirement can help you plan. But there is no one-size-fits-all target replacement rate. Good retirement saving tools will recognize people’s differences. In fact, we recommended steps that the Department of Labor could take to help workers better understand replacement rates.  The tools the department currently offers do not allow users to adjust replacement rates based on their individual circumstances. To see what tools are available, what experts recommend, and how the Department of Labor could better help workers plan for the future, check out the full report.
About Watchblog

GAO's mission is to provide Congress with fact-based, nonpartisan information that can help improve federal government performance and ensure accountability for the benefit of the American people. GAO launched its WatchBlog in January, 2014, as part of its continuing effort to reach its audiences—Congress and the American people—where they are currently looking for information.

The blog format allows GAO to provide a little more context about its work than it can offer on its other social media platforms. Posts will tie GAO work to current events and the news; show how GAO’s work is affecting agencies or legislation; highlight reports, testimonies, and issue areas where GAO does work; and provide information about GAO itself, among other things.

Please send any feedback on GAO's WatchBlog to blog@gao.gov.