2. How Much Should You Save?

Question 1

What phenomenon describes the ability of an organism to change its physiology in response to its environment?

Answer 1

Phenotypic plasticity

This concept is illustrated by Dolly Varden char changing their digestive organs based on food availability.

Question 2

What is the common savings advice often found in articles?

Answer 2

• Save 20% of your income
• Save 10% of your income, working up to 20%, then 30%
• Have 1x your income saved by age 30, 2x by age 35, and 3x by age 40

These rules are based on flawed assumptions about income stability and saving ability.

Question 3

What does the Panel Study of Income Dynamics (PSID) suggest about family income volatility?

Answer 3

Income volatility has increased by 25 to 50 percent from 1968 to 2005

This indicates that incomes are becoming less stable over time.

Question 4

What is the estimated savings rate for earners in the bottom 20% of income?

Answer 4

1% of their income annually

This contrasts sharply with higher earners who save significantly more.

Question 5

According to research, what percentage of their income do those in the top 1% save annually?

Answer 5

51%

This highlights the disparity in savings rates across different income levels.

Question 6

True or False: The biggest determinant of an individual’s savings rate is the level of their income.

Answer 6

True

This has been widely established in financial literature.

Question 7

What equation can be used to determine how much you can save?

Answer 7

Savings = Income – Spending

This equation emphasizes the importance of knowing both income and spending.

Question 8

What is recommended as a simpler approach to calculating spending?

Answer 8

Calculate fixed spending and estimate variable spending

Fixed spending includes rent, internet, subscriptions, etc.

Question 9

What percentage of retirees withdraw less than their investments earn?

Answer 9

58%

This indicates that many retirees are not depleting their savings.

Question 10

What is a common concern for new retirees regarding their finances?

Answer 10

Fear of running out of money

Studies show that many retirees actually increase their wealth over time.

Question 11

What is the estimated percentage of scheduled Social Security benefits that could still be paid after the Trust Fund runs out of money?

Answer 11

79%

This suggests that future retirees will still receive a significant portion of their benefits.

Question 12

Fill in the blank: The best savings advice is to _______.

Answer 12

save what you can

This approach reduces financial stress and promotes happiness.

Question 13

What is one potential negative effect of financial stress according to research?

Answer 13

The negative effects of stress outweigh the positive effects of income or health

This highlights the importance of managing financial anxiety.

Question 14

What should be done when income is high, according to the article?

Answer 14

Save more

This reflects the idea of adjusting savings based on financial ability.

Question 15

What should be done when financial circumstances change and income decreases?

Answer 15

Save less

Flexibility in saving is emphasized to reduce stress.

Question 16

What did researchers at Texas Tech University find regarding retirees’ spending behavior?

Answer 16

Many retirees do not spend down their savings and often see their wealth increase

This contradicts the common fear of running out of money in retirement.

Question 17

What is the average net wealth left behind by retired adults who die in their 60s?

Answer 17

$296,000

This indicates that many retirees have substantial assets at the end of their lives.

Question 18

What is the main conclusion regarding how much people should save?

Answer 18

You probably need to save less than you think

This conclusion is based on empirical research suggesting low risk of running out of money.