James Harris, a 20-something electrical engineer in Seattle, is doing a better job of preparing for retirement than most people. He and his wife, who share the same profession, sock away a whopping 20 to 25 percent of their income.
When it comes to investing, most financial advisers would give Mr. Harris an A for effort. But he still has questions.
"The hard thing is to figure out what we want to do when we retire and how much we'd want to save," says Harris. Sometimes, he wonders if his estimates are off.
It's possible, according to financial planner Ty Bernicke, who made waves earlier this year by suggesting that the ubiquitous online "retirement calculators" actually overestimate how much Americans need to save.
"The reason they're inaccurate is that they don't account for the fact that as a person gets older, they spend less," says Mr. Bernicke in Eau Claire, Wis. Even considering inflation, he says, "an 85-year-old spends less than a 65-year-old."
With support from federal statistics about the expenditures of Americans over their lifetimes, Bernicke aired his opinions in the June issue of the Journal of Financial Planning, setting off a minor stir in an investment industry where the rule of thumb is to save, save, save.
"The last thing most people need is an excuse to save less, when we're in a situation where clearly most people aren't saving enough," says Robert Brokamp, a columnist for the Motley Fool investment-advice service. Indeed, a recent study by the nonpartisan Employment Benefit Research found that 20 percent of retirees are in danger of outliving their money.
Nevertheless, people hardly spend the same amount of money each year during retirement, Mr. Brokamp acknowledges.
Bernicke recommends that investors try to estimate how much they spend at various times during retirement.
During the first several years, expenditures may be highest. "You'll find people who spend as much as they did [before retirement] or more," Brokamp says. "When you're not working, you're often doing something that costs money."
But people "eventually slow down as they get older," Brokamp says, and spend less.
On the other hand, healthcare costs can go up with age. But in his article, Bernicke argues that even those expenses typically won't eliminate all of the financial benefits from spending less on other things like food, clothing, and transportation.
Of course, not everyone is adept at money management. What if you barely have an idea where your salary goes now, let alone a good handle on what you'll need during retirement?
Some financial planners recommend that in lieu of specific calculations, workers save as much as 25 percent of their income. Certain groups of people, such as single women, may need to save even more, says Jack VanDerhei, professor of risk insurance and healthcare management at Temple University in Philadelphia.
Why single women? Because their incomes tend to be lower, meaning they're putting less into retirement, Mr. VanDerhei says. At the same time, their life expectancy is high, giving them more years to spend the little money they manage to save.
Does saving one-quarter of your income sound impossible? That's because it is, according to Professor VanDerhei. Such high levels of saving are not feasible, he says. "That's another way of saying there's no hope for these people on average. They're not going to have enough money to ensure themselves of an adequate income when they reach retirement age."
The problem, VanDerhei says, is that the days of mandatory contributions to pension plans are gone, meaning employees are left to their own devices when it comes to saving money. And some make unwise decisions.
Despite the potential of a grim financial future, no one's telling people to simply give up and spend all their money as it comes in. Even Bernicke, although skeptical of the accuracy of retirement calculators, tells clients to save what they can.
"For younger people, 10 percent [devoted to savings] should be the very minimum," he says. "They'll never look back and say, 'I wish I'd saved less.' "