Much of what is written/espoused each day on various financial and market topics ends up revolving around someone having a crystal ball. Our holistic, evidence based approach is totally divorced from that but in one area we actually do have a crystal ball, or at least a reasonable facsimile. That one area is savings. Tell us how much you are saving today and we can paint a fairly good picture of what your financial life will be like in the future.

Many investors have very antiquated and erroneous ideas about how much they need to save (and where) in order to reach goals many years off in the future. At modest income and lifestyle levels, the age old dictum of saving 10% of income probably works. As income and lifestyles increase however, the savings need rises as well, not in a straight line but rather exponentially. Some of this is surely attributable to Parkinson's Law (named after Professor C. Northcote Parkinson, who penned a piece in The Economist on this topic 50+ years ago), which states "expenses rise to meet income".

We usually advise clients in the upper income ranges that a savings goal of 20% of income per year is likely needed. Ideally, that should be split between tax deferred retirement accounts and taxable investment accounts. This should provide for a good income tax planning opportunities between the 2 asset "buckets" once regular withdrawals commence.

It's pretty simple really. Little savings today = small withdrawals later. Larger savings today = larger withdrawals later. Above average investment returns will help the cause just as below average will hurt but in reality the inputs (savings) matter the most. You simply can't depend on above average returns every year. To get a better idea of just how big the change in the amount of savings can make, take a look at this portfolio comparison chart (Click here).