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MUTUAL FUNDS

Retirement May Be Even More Expensive Than

You Think
Investing for a Lifetime, by Richard C. Marston

JULY 12, 2014

Off the Shelf

By PAUL B. BROWN

TWO things make Investing for a Lifetime (Wiley & Sons) worth your
attention.
First is the simple, straightforward approach that the author, Richard
C. Marston, a finance professor at the University of Pennsylvania, uses to
explain how you should invest to ensure that your money lasts as long as
you do.
He reduces everything to the three steps that you might have
suspected: Save a lot, invest your money wisely and dont withdraw the
funds too soon.
As Mr. Marston concedes, none of this is easy. Intriguingly, though, he
argues that the piece of the puzzle that most people regard as the hardest
may actually be the simplest. I believe investing is relatively easy, he
writes. It is much harder to save than invest. And he believes that you
need to save a lot.
That brings us to the second thing to like about the book. Most of it is
devoted to helping you determine exactly how much money you need to

put away. His answer: a great deal.

Although Fidelity Investments garnered a lot of attention two years
ago when it declared that you would need eight times your current salary
to meet basic income needs in retirement, Mr. Marston disagrees.
Despite the fact that it is very difficult to save eight times income, the goal
the company proposed seemed too low to me, he says.
If you thought eight times current income was daunting, Mr.
Marstons default position will stun you. He says it can easily come to 15
times what you are earning now.
Why? I assume that when investors retire they would like to spend as
much as when they were working, he writes.
But that spending figure does not equal 100 percent of current
income, he says. For one thing, you wont have to keep saving your money
for retirement once youve retired. In the hypothetical he employs
throughout, if you are now making $100,000 annually, and saving $15,000
a year for retirement, you have to generate just $85,000 of income in
retirement.
THAT number is further reduced by your Social Security benefits.
And unlike most other retirement guides, Mr. Marstons book factors in a
fairly precise figure of what you can expect to get.
A worker earning $100,000 today and equivalent amounts, adjusted
for inflation in earlier years, would qualify for almost the maximum
amount paid by Social Security, he writes. If this individual is retiring at
the full retirement age of 66, the Social Security payment will be almost
$26,000 a year.
That lowers the needed amount of money to about $59,000 a year. So
where will it come from? Unless you have a pension or some other stream
of income once you stop work, the answer is your retirement funds.
Throughout the book, Mr. Marston uses the rule of thumb that you
can withdraw 4 percent of savings a year adjusted upward for inflation
to fund your retirement without running a substantial risk of outliving
your money. So the person making $100,000 will need a retirement

portfolio of $1.475 million to be able to withdraw $59,000 a year. That

works out to be a savings goal of 14.8 times current income, not eight.
So is the situation as dire as Mr. Marston makes it seem? It depends.
Obviously, its possible to live on less than your current income, minus
retirement savings, once you stop working. You wont have work-related
expenses commuting, lunches out and the like. That, coupled with the
fact that you could move to a less expensive part of the country, is why
some experts estimate that you may be able to get by comfortably on 70
percent of your current income. (The counterargument, which Mr.
Marston makes, is that you will have more time to pursue leisure activities
like travel activities that cost money.) Then there is the question of just
how much you will earn on your investments once youve retired.
Mr. Marstons ideas about how to invest are, as he promises, simple to
carry out. A model portfolio is made up of equal parts well-diversified
stock holdings and high-grade bonds.
Based on historical returns, he says, such a portfolio would earn about
3.7 percent annually, after factoring out inflation, so you wouldnt need to
pull out much principal to reach the 4 percent figure.
The presentation here is strictly matter-of-fact. Mr. Marston lets the
numbers speak for themselves, and they tell us at least two things: First,
we will probably need more money than we think to retire the way we
want. (True, planning to have the same level of spending in retirement as
we do now is ambitious, but who wants conservative goals?)
Second, it makes sense to push back your retirement date if you can.
Of course, you may not have a choice. For many people, ill health, forced
retirement or an inability to find work when theyre older are facts of life.
Still, a surprising number of people decide on their own to retire relatively
early. More than 40 percent choose to apply for Social Security benefits at
age 62, the earliest they can, Mr. Marston writes, citing Social Security
Administration figures, even though the annual payments for such early
retirees are only 70 percent of what they could have received had they
waited until age 66.

So cashing in early is not the best course, if you can afford to wait.
When you are investing for a lifetime, you want to maximize everything
you can.
A version of this review appears in print on July 13, 2014, on page BU19 of the New York edition
with the headline: Retirement May Be Even More Expensive Than You Think.

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