“It has to be up to the person to decide what’s right for them. For some people, delaying retirement or moving to a lower-cost area is not going ot be feasible,” said Wendel. “The good news is that we can find many different combinations of increasing contributions, changing standards of living or changing retirement age that lead to a better outcome.”
In most of the simulations, gradually escalating savings over time was as effective as doubling the total amount saved at the beginning of the study period.
Morningstar’s research also found a wide variance in optimal retirement account contribution rates. At most, a single contribution rate would fit the need of 8.8 percent of the households in the simulations.
The research showed the danger of rules of thumb and generic, default assumptions, said Wendel. He cautioned against assuming that default contribution rates will be the right solution for a large cohort of employees.
Combining different actions multiplies their effectiveness and can decrease the need for austerity measures. In other words, tools like retirement date planning, saving, investing and controlling standard of living work best when implemented as part of a coherent plan, he said.
“There’s a tremendous power in combining a number of small actions rather than taking heroic actions on one of these retirement levers,” said Wendel.
As an example, Wendel said that if Americans delayed retirement until at least age 67 and contributed at least 6 percent of their income to their retirement savings in the meantime, it would boost the percentage of households that have what they need for retirement from 26 percent to 71 percent.
Wendel argued that the dispersion in results and the complexity in combining retirement strategies calls for more personalized financial advice.
“There is no uniform default. Instead, we need a personalized analysis,” said Wendel. “I think this is a full-throated endorsement of personalized financial planning.”