How much should I save?

Is working out how much to save an exact science? Or is the answer, in fact, much simpler?.

For as long as I have been associated with the financial services business, actuaries assigned to marketing departments have produced endless figures showing that unless you start pension saving the minute you start earning, and keep going all your life, you have no chance of retiring on a comfortable two thirds of your final salary. And journalists desperate for copy have peddled these fictional projections.

All the projections are based on assumptions. They assume that your earnings will follow a certain path. They assume a rate of inflation. They assume an investment return. The estimable Peter Clark, president of the Institute of Actuaries ten years ago, showed what was then –and still is – rare humour for a prominent member of the profession:

“An actuary is a person who passes as an expert on the basis of a prolific ability to produce an infinite variety of incomprehensible figures calculated with micrometric precision from the vaguest of assumptions based on debatable evidence from inconclusive data derived by persons of questionable reliability for the sole purpose of confusing an already hopelessly befuddled group of persons who never read the statistics anyway.”

Quite. The journalists who peddle this twaddle do not seem to realise that many of us can’t afford to save when we’re young, and can afford it even less when our children are growing up. It would make more sense for them to deal with the real world, where even people who are by any standards quite well off actually accumulate their retirement assets quite late in life.

It would help a lot if the FSA banned the use of projections which are, to the first order, worthless. No-one knows what the financial landscape is going to look like for the next thirty years. And, by the way, what matters is not percentages of your final salary but how much money you actually need to support the lifestyle you actually want.

The only sane advice is “save as much as you can for as long as you can”, but any adviser who came up with such advice would probably be condemned by the regulator.

Read this article at http://www.candidmoney.com/articles/article104.aspx