Saving is easier if you think of it as an opportunity. Each dollar you earn is part of your finite lifetime income. Most people don't reflect on the finiteness of their lifetime income--the finiteness of their monthly income is painful enough. However, we all have a limited lifetime income. Each dollar spent represents a saving opportunity lost. You can't save a dollar spent. It's gone forever. You can earn more dollars in the future. But those dollars further reduce your finite lifetime income. You can't earn more dollars and still have as much future income as you previously had. Yes, you can work longer than you expected. That appears to increase your lifetime income. But it's really an illusion. The reason people work longer is usually because they didn't save enough (including enough to compensate for stock market volatility as well as day-to-day retirement needs). So, all along, even though they didn't realize it, their habits and lifestyle doomed them to work longer than they expected. Their expectations changed, but not the finiteness of their lifetime income. The only thing they might have gained, perhaps, is greater self-knowledge.
If you save nothing during your working years, you can look forward to retirement on Social Security. Most people think old age and eating dog food are incompatible. But if all you have is Social Security, then dog food looms in your future whether or not you have a pet. With the Great Recession that began in 2008 and the COVID Recession that began in 2020, saving has become fashionable. If you don't save, your net worth can quickly go negative if you're laid off or get sick.
In good times, the U.S. savings rate in recent decades has hovered around 4% of disposable income (i.e., the amount of earnings you have after paying income taxes). Is 4% enough? Let's assume you're part of a household having an annual income of $100,000 dollars, with a marginal federal income tax bracket of 28% and a marginal state income tax bracket of 6%, and pay $25,000 total in federal and state income taxes (this figure may vary, depending on your state, deductions and credits). Your disposable income would be $75,000. Let's further assume that you save 4% a year, or $3,000, with $2,500 going into a retirement account and $500 in a regular bank account. Assuming you work 40 years, with an average inflation rate of 3% per year and an average return of 6% per year on your savings (stocks have a higher historical average return, but you shouldn't put everything in stocks), you'll have about $445,000. Adjust that figure for inflation and you'll have about $131,000 current dollars. Conventional financial planning wisdom dictates a person retiring at age 65 shouldn't spend more than about 4% of their retirement savings a year. With $131,000, that comes out to about $5,250 a year (a figure that can be adjusted for inflation each year). That would leave you scanning grocery store flyers for dog food sales.
Of course, just about everyone gets some Social Security. A relatively high income married couple that averaged $100,000 a year for 40 years might get something like $40,000 a year in Social Security (assuming one member of the marriage earned the bulk of the income and the other takes spousal benefits). A person living alone with an earnings history averaging $100,000 a year might get around $28,000 a year. Add either figure to $5250, and there's a better chance the dog food will stay on the store shelf. But these amounts only support modest lifestyles. You can't do a lot to affect the amount of Social Security you get. You have a lot more control over how much you save, and therefore how much you'll have in retirement.
Retired persons tend to have greater medical expenses, and savings can disappear in a flash when a medical crisis comes up. While $131,000 is nothing to sneer at, it won't cover much more than one year in many nursing homes. And you'll have plenty of out of pocket medical expenses before you have to move to the nursing home. So you can't count on the $131,000 to be there late in life. Most people in their 70s and 80s probably wish they had more savings. The finiteness of your income means that saving is essential to retiring on more than Social Security. Every dollar spent now is a saving opportunity lost, one that can never be replaced. Saving isn't a sacrifice. You're buying a better retirement. If you want to maintain the lifestyle you have during your working years, save about 15% to 20% of your pretax income for 30 to 40 years. Such a savings rate can be difficult, but so is eating dog food (presumably; I haven't tried it). You can economize now or economize later. There's still no free lunch. Rugged individualism, America's cultural essence, today consists of having a stable financial foundation. The frontier is still there, but you no longer carve a homestead out of the wilderness and fill it with amber waves of grain. Today, savings and investment accounts substitute for 40 acres and a mule.
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