Two things make Investing for a Lifetime (Wiley & Sons) worth your attention.
First is the simple, straightforward approach 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 don't withdraw the funds too soon.
"I believe investing is relatively easy," he writes. "It is much harder to save than invest."
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.
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," but Marston disagrees. "Despite the fact that it is very difficult to save eight times your income, the goal the company proposed seemed too low to me," he says.
If you thought eight times your current income is daunting, Marston's default position will stun you. He says it can easily come to 15 times what you are earning now.
He calculates that someone making $100,000 annually, saving $15,000 a year for retirement and qualifying for almost the maximum amount paid by Social Security would need about $59,000 a year in retirement. 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.
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.