Economics vs. Conventional Planning
Conventional financial planning uses "rule-of-thumb" replacement rates to set your retirement living standard targets. This is dangerous. Even small targeting mistakes can lead to bad saving and insurance decisions, which compound over many years.
Setting Retirement Targets Too Low
Setting your retirement target too low will lead you to spend too much and save too little when young—leading to a drop in your living standard in retirement. This is consumption disruption, not consumption smoothing.
Setting Retirement Targets Too High
Setting your retirement target too high will lead you to oversave when young and to squander your youth rather than your money. This is consumption disruption, not consumption smoothing.
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