Maybe saving for retirement a bad financial plan for the poor

“Enjoy” isn’t quite the right word, but maybe “intellectually provoked” describes my experience reading “How Much Should the Poor Save for Retirement?” by American Enterprise Institute economist Andrew Biggs.

In a May 2019 paper, Biggs pokes at the conventional wisdom about retirement savings.

One big idea: The poorest among us should probably not attempt to save for their own retirement.

Another big idea: Social Security has improved as a safety net for the most vulnerable over the past 30 years.

A third big idea: Social Security is keeping very vulnerable people alive.

The fourth big idea is my own, which I’ll save for the end.

The way financial advisers recommend saving for retirement is to sock away and invest a percentage of your income, typically 10 percent, every year. Indeed, anyone capable of doing this consistently between ages 30 and 65 will find their retirement needs wholly satisfied.

The goal is to keep the “replacement rate” of income in retirement close to working-age income. A replacement rate of 100 percent would mean you have sufficient assets and income to keep your lifestyle at the same level in retirement as you enjoyed while working. Even a replacement rate above 75 percent could be considered pretty safe since lifestyle costs may drop in retirement.

Subtly embedded in this triedand-true savings rule is the idea that the amount of retirement income we need is specific to the lifestyle costs of different lifetime earners. What that means is that the lifestyle needs in retirement of a $50,000-peryear lifetime earner — who managed to put away $5,000 per year — are different from the lifestyle needs of a $300,000per-year earner, who managed to save $30,000 per year. A $500,000 nest egg in retirement may be plenty for some. Meanwhile,

a $3 million nest egg may prove insufficient for another.

This may, or may not, sound true to you. I’m just pointing out it’s a bedrock idea embedded in classic rules of retirement savings.

This is a key thing to know when reviewing Biggs’ article.

Biggs focuses on the bottom earners, the poorest 20 to 25 percent. Keeping that in mind, here are some kind-of-crazy statistics:

In 2016, 56 percent of households in the bottom quarter of earnings reported that retire