Dynamic Savings Overcomes Uncertainty

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    ‘Dynamic Savings Rates’ can help individuals save for retirement despite uncertainties about the future, says Marlena Lee, a vice-president at Dimensional. She said many retirement calculators ask individuals to put in values that are uncertain. These include investment returns, inflation, and annual raises during a career. However, few people know how much they will be making at retirement or even 10 years before retirement. Instead, she said retirement saving should be based on income and escalate as income increases. Then, once a retirement goal is determined, the savings rate can be adjusted to reflect outperformance by investment savings or periods where nothing is saved. She also suggested that if people start saving early, it fosters a habit of saving even when income is low. Increases in saving can come as income rises and an ideal time is to use raises to increase the savings rate. Part of the process involves guidepost the individual can use to make sure their savings are on track to reach their retirement goal.