Ready for today’s retirement financing pop quiz? Which of the following has the biggest impact on your ability to sustain your preretirement standard of living?
Better-than-average market returns
Dipping into home equity to supplement traditional retirement financing (401(k)s, IRAs, pensions, and Social Security)
Delaying retirement until age 70
Give up? The third answer is the correct one, according to new research from Vanguard. It’s not even close.
Don’t be too hard on yourself for thinking the correct answer is the first one, since almost everyone makes this same mistake. But better-than-average market returns make a surprisingly small difference, according to the Vanguard Retirement Readiness Model (VRRM), a new and proprietary model that Vanguard recently created. The VRRM calculates what Vanguard calls the “sustainable replacement rate,” which is “the percentage of preretirement income that a worker can replace throughout retirement in 90% of market and mortality scenarios.” Consider a worker whose preretirement income is at the 50th percentile of the nationwide …