Many companies featured on Money advertise with us. Opinions are our own, but compensation and
in-depth research may determine where and how companies appear. Learn more about how we make money.

Retirement calculations are all about the numbers. How big will your nest egg be? How much money will you need to earn in retirement to maintain your pre-retirement standard of living? What type of investment returns should you plan for? How long will you live? Lee Eisenberg even wrote an entire book several years ago about “The Number.”

Let’s restrict today’s numbers to three key figures: 1) the percent of your pre-retirement income you will need to maintain your current standard of living during retirement; 2) the amount of money you will need to sock away to achieve this replacement rate, and 3) how much you can pull out of your portfolio each year and still have a good shot at not outliving your money in retirement.

The Center for Retirement Research at Boston College just issued a study that took a crack at the first two items. It said middle-income retirees should adopt retirement-income targets that would replace 71% of their pre-retirement incomes. To do so, they would need to augment their Social Security and other pensions with contributions to their private savings that would average 15% of their pay if they began saving at age 35 and retired at age 65.

The comparable figures for low-income earners were an 80% replacement rate and an 11% savings rate. This is mainly because Social Security’s progressive benefit structure replaces a higher percentage of pre-retirement income for lower earners. On the other end of the scale, high earners were found to need a replacement rate averaging 67% and a 16% private savings rate.

We could endlessly debate whether these replacement rates and savings targets should be a few percentage points higher or lower. But while some financial advisers may base client strategies on income replacement rates, I have never interviewed a retiree who did so. These numbers are just guides, so don’t get carried away with them.

The big point is that we need to save a lot and to start at early ages. And we’re not saving nearly enough. A second major point of the CRR research is that continuing to work past age 65 can erase a lot of the savings shortfalls for those who haven’t set aside enough.

For example, if that typical middle-income earner doesn’t begin saving for retirement until age 45, she would need to save on average an implausible 27% of her income to permit her to retire successfully at age 65. If she continued working to age 67, that saving rate would fall to a still-unlikely 20%. But if she kept working until age 70, she would need to save a realistic 10% of her salary to maintain her standard living in retirement.

If you have been a dutiful saver, or even if you haven’t, you still need to figure out how to spend down your nest egg. Such discussions often begin with what’s called the 4% rule, which will celebrate its 20th birthday this October.

Developed in 1994 by financial planner William Bengen, it said nest eggs had a good shot at lasting for 30 years if a person began by pulling out about 4%t of their savings in the first year. Whatever number of dollars that represented would determine each successive year of dollar withdrawals plus an adjustment factor to keep pace with inflation.

In a recent study comparing different retirement drawdown strategies, the American Institute of Economic Research said of the rule, “For a rough estimate of how much is needed for retirement, it’s not bad. But no simple financial rule can take into account the complexity of real life.”

Bengen himself says as much. “For most people, to be perfectly honest, applying a 4.5% rule is probably not wise, even dangerous, because there are very simple assumptions that I used to develop that rule,” he said in a radio interview last year.

AIER, an independent non-profit in Massachusetts, ran a slew of retirement spending scenarios that involved variations of withdrawing a constant amount of dollars each year, a constant percentage of nest egg assets or an increasing percentage of assets. This last approach is based on the notion that adverse investment returns are especially damaging during the early years of retirement.

Withdrawing smaller percentages in those early years can help minimize nest-egg depletion (but it would have been scant protection from the Great Recession’s market plunge). You then can afford to withdraw larger percentages in later years primarily because your savings will need to last fewer years as you get older.

After producing nearly 100 combinations of drawdown approaches, dollar and percentage amounts, AIER was refreshingly candid: “There is no winning strategy.” Bad market conditions can ruin even the most prudent drawdown plans. Booming markets can make lunkheads look like geniuses.

Don’t get me wrong. The numbers do matter. But successful retirements, which is what we all really desire, are governed by emotions. I’ll write about these next week.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at or @PhilMoeller on Twitter.

Related stories: