Some advice for the 401(k) generation

We've all gotten the message to save more for retirement.

Problem is, our national conversation about planning for retirement is on the wrong track. It reflects too much Wall Street and not enough Main Street.

With the rise of the 401(k), Wall Street has convinced us that we need to be savvy investors to reach a comfortable retirement.

We've been told that stocks offer the highest potential return. And that the central question of retirement planning is figuring out how much stock risk we can bear.

That might be true for someone worth millions. But the typical worker nearing retirement has less than $100,000 in a 401(k). As Alicia Munnell, head of the Center for Retirement Research points out, most of us don't have enough money in the retirement till for high returns to count much.

What does boost retirement income? Let's turn to Main Street for guidance. Your grandparents were spot on when they said "spend less." You may have rolled your eyes when they passed on that time-honored chestnut, but they were right. The reason we don't hear this from Wall Street is because they don't make commissions pushing frugality. Main Street has also come to realize that most of us are going to need to work longer.

I find these numbers convincing. If the typical worker starts socking away for retirement at age 25, she cuts her required savings rate for a decent retirement by about two-thirds. But don't worry if you're 45: delaying retirement from age 62 to age 70 also cuts the required savings rate by two-thirds.

Look, as part of the 401(k) generation, we all need a well-diversified portfolio. But we should pay much more attention to our spending habits and our careers and much less time on our mix of financial assets.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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