Want to retire but cannot control the markets? Save more

The old saying about not worrying about things we can’t control and concentrating on those we can applies to retirement planning.

Vanguard conducted a study of market returns, savings rates, and investment horizons as they relate to retirement success. It found that savings rates are very important.

“Our conclusions reinforce that the two levers an investor can directly control—savings time horizon and savings rates, will provide a higher probability of success, rather than relying on the possibility for higher portfolio returns,” Vanguard said.

Starting to save early in a career makes a big difference in retirement wealth, the study found. For instance, someone who makes $64,090 and saves 6 percent of salary beginning at 45 years old, and who puts half of their savings in stocks and half in bonds, ends up with a hypothetical $128,000 at age 65, Vanguard found.

But someone who starts saving 6 percent of a $30,000 salary at age 25 ends up with $359,000 at retirement, nearly three times the amount saved by the late starter. In order to catch up, the late starter would either have to increase his savings rate, or delay retirement to age 70, Vanguard said.

Higher savings rates “can have a substantially more positive impact on wealth accumulation than shifting to a more aggressive portfolio.”

A saver who puts away 9 percent of pay starting at age 25 in a “moderate” allocation ended up with a higher retirement balance than the saver who invested in a more “aggressive” allocation but put away only 6 percent of income.

The gap in final accumulated amounts between savings rates was even more dramatic in a “worst-case” scenario where markets declined, the study found.

This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.