The Employee Benefit Research Institute (EBRI) is a responsible organization which provides valuable research on the state of retirement savings in America. They are not, in other words, an organization you would associate with a Las Vegas odds maker, and yet a recent EBRI publication offered odds on a variety of different betting propositions.
The betting propositions and odds involved were chances of retirement success. The EBRI runs computer simulations for a variety of different possible outcomes to determine the odds of a person in a given situation outliving their retirement funds (failure) or having enough money to live on in retirement (success).
The EBRI's probability approach points out two important things about retirement saving:
- Retirement saving is not a sure thing. Even if you make all the right moves, there will still be some chance of things going wrong.
- Average outcomes that are the basis for many financial planning models represent a 50/50 outcome -- and that doesn't sound so reasonable when you think of it as the chance that you might outlive your financial resources.
Still, while retirement saving is not a sure thing, it doesn't have to be a total crapshoot. Here are five things you can do to improve your odds:
- Start saving earlier. Fundamentally, think of retirement saving as two sides of a balance scale: the years of saving are on one side, and the years of spending are on the other. The more years you can add to your savings account, the more you will tip the scale in your favor.
- Raise savings rates. Of course, those years of saving and years of spending are not totally equivalent, since you will typically only save a fraction of your income. However, the higher you can raise your savings rates, the more impact those years of saving will have.
- Search for higher savings account rates. Any projection of success or failure in a financial model depends on certain assumptions, such as the rate of return on assets. Anything you can do to raise those returns -- find higher savings account rates, make sound decisions in choosing investment products, etc., raises your chances of success.
The original article can be found at Money-Rates.com.