Everyone Wants a Pension

The basic situation is that people work for about 40 years, during which they earn more money than they spend, and then they retire and don’t work for about 30 years, during which they spend more money than they earn.1 That’s a very broad statement, you could quibble with the numbers, and it is certainly not true of everyone: Some people retire early, some retire late, some die young, some live a long time, etc.2 But as a rough statistical average, most people get some decades of saving in the workforce and then some decades of spending in retirement.

At that rough statistical level, you could model out how much the people need to save in the first 40 years to be able to afford their lifestyle in the next 30 years. The model is of the form “if you invest X% of your income during your working years, and your investments return Y% per year, then in retirement you can draw down Z% of your investments each year to continue to live a similar lifestyle,” something like that. (Popular numbers include 15% for X, 7 or 8% for Y and 4% for Z, though this is not investing advice.)