A few commentators have criticized the idea of saving less than the usual 15% recommended by the financial services industry. I’ve already explained how saving so much means you will need to make big sacrifices when you are young and raising a family. In fact, you will have more money available to spend when you are retired at 65 years old than you had when you were working.

This doesn’t make sense to me. Instead you should strive to have a similar income throughout your working and retired life. Fred Vettese, one of my investingbs.com hall of fame members calls this your Neutral Retirement Income Target. For most families this can be achieved by saving 6-10% of your pay while you are working.

Research shows that people maintain the same spending habits as they age. So increasing your disposable income by 50+% in retirement means you probably could have done other things with your money in your 30’s, 40’s and 50’s without jeopardizing your golden years.

The most common criticism I’ve heard deals with job loss over the 35 year period that you will be working and saving for retirement. The argument is if you become unemployed and are unable to set aside money for retirement while looking for a new job, you may end up not having enough money to retire on and maintain your lifestyle.

My response is:

1. An event like job loss is exactly why the emergency fund is so important. Setting aside 6 months worth of expenses in a plain bank account means you will not fall into debt as you search for a new job.

2. The concern of job loss is exactly why you need to make sure that you keep up your employment skills. This is the best way to avoid an extended stretch of unemployment. Even the most valuable employees can be let go by a company facing difficulties, but the ones who have kept up their skills and value will find work quickly somewhere else.

3. North America will soon face a demographically driven worker shortage that will last decades. We are aging quickly and we will need more workers than we have available to us. Immigration to North America will help, but there is not one demographer that I have researched who believes that will be enough to fill the gap. The result is high quality workers will become more valuable and should experience lower levels of unemployment.

If a person is still unemployed for a extended period of time, then their living standard would need to be lowered and this would mean less money available now and into retirement. The person would have to become accustomed to this lower standard.

The possibility of the worst case scenario is still not a sufficient reason to over save for 35 years.

There are ways to mitigate the risk.