For retirement investors, the weak 10-year track record of stocks means it’s time to renew a focus on the economics of retirement. The math is pretty simple, at least at a high level:

Contributions (C) + investment returns (R) = retirement wealth (W)

To put it in words: Retirement wealth arises from contributions (whether by employee or employer) made over decades of work, plus the specific pattern of investment returns earned during that period. A decade of depressed stock market returns, like the one we’ve just lived through, means that something else has to give—either on the contributions or benefits side.

Start with contributions. The answer to weak returns is that we could all use more “C.” Americans need to sock away more money. In a 401(k)-type retirement program, that typically means anteing up more of your own income. (This is particularly true if your employer has cut back on its own contributions in the downturn.) Of course, all of this is easier said than done in tough economic times.

The other option is not to increase contribution rates—it’s to increase the period over which those contributions are made. Working longer can mean higher lifetime earnings from work, and ultimately higher retirement contributions. Working longer has an added element: All things equal, it means fewer years of benefits needed in retirement.

Now, I do recognize this makes me sound like a killjoy. One more year of work also means, all things equal, one less year of enjoying a life of leisure before departing this vale of tears. But such is the math that you get a triple bonus for postponing retirement: more saving, more investment earnings potential, and less money needed in retirement.

The retirement formula leads me to another thought. In some ways, I’d argue that many Americans planning for retirement were misled by the exceptional stock market of 1982–2000. During those years, it seemed like investment returns would do much of the heavy lifting. Saving was something of an afterthought when it came to accumulating retirement wealth. It was possible to imagine working 35 years, retiring in one’s late 50s, and living in retirement for another 30 years.

Today, with a more realistic view of what markets can deliver, in good periods and in bad, the numbers look different. It’s more about working for 40 or 45 years, and retiring for 20. Contributions need to be higher than many of us imagined. Markets, averaged out over good and bad periods, are now recognized to play a smaller role.

You could call this the new retirement math.

Notes:

• All investments are subject to risk.

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