By Jason Zweig

This stock market seems unstoppable.

The S&P 500 is up 11.5% so far this year. Over the past decade, the S&P 500 has returned an average of 15% annually, far in excess of its long-term annualized return of 10.3%.

The obvious worry is that stocks have become extraordinarily expensive. The more subtle concern is that a booming stock market breeds complacency.

Huge returns make a comfy retirement for everyone seem within reach, without effort or sacrifice. And that's a dangerous delusion.

With indexes at record highs, it's the perfect time to remind yourself that saving for your retirement isn't the stock market's job. It's yours.

Whether you have decades of working ahead of you, you're nearing retirement or you're already retired, you're probably going to need more money to sustain you in your post-working years than you think.

That will be especially true if, as history suggests, high current stock prices lead to lower future returns. What if performance dwindles? Retirement savers who took high returns for granted and didn't save enough may face a severe shortfall.

But returns are only one side of the coin. The other is spending.

It's widely believed that people spend less in retirement than when they were working. One popular rule of thumb is that you will have to cover only 70% to 80% of your pre-retirement spending. ( Another version says you will need to replace about the same amount of your pre-retirement income.)

That's nonsense, according to researchers Edward McQuarrie and William Bernstein, who are writing a book with the working title "How Much You Must Save to Retire." Several studies have shown that, on average, people spend around 93% to 97% as much in retirement as they did when they were working.

Those who spend less do so not because they can, but because they must -- because they didn't save enough.

The wealthier, on the other hand, may even spend more in retirement than they did while working.

Dan Foote, who turns 65 next month, can vouch for the steady state of spending. Foote is a former commercial banker who retired 10 years ago. While he was working, he imagined that his household's spending would decline when he retired -- especially after moving from pricey suburban New Jersey to the lower-cost Columbus, Ohio, area.

"That's not how it worked out," says Foote. "I don't commute or buy suits, but I have more time on my own to spend money. I think we spend the same [as during the working years]."

Fortunately, adds Foote, because the stock market has boomed in the past decade, "our net worth today is higher than it was seven or eight years ago."

But what if the stock market doesn't boom? What if it busts? In recent research analyzing returns back to 1793, McQuarrie looked at all 30-year periods lagged monthly (starting with January 1793, February 1793 and so on) through the end of 2023.

In 160 of those more than 2,400 three-decade periods, annualized stock returns averaged less than 3% after inflation. In 302 of the 30-year periods -- an eighth of the total sample -- stocks gained an average of less than 4% annually after inflation.

That might sound pathetically low to you. It isn't. The average since 1793 is 6.1%.

If you expect to work for 30 years and be retired for 30 years, says Bernstein, "you'd better save a truckload of money -- and you'd better be lucky."

Over the three decades ended in December 2023, U.S. stocks returned an annualized 6.9% after inflation. Over the 360 months ended in July 1982, however, they earned only 4.7%. And in the 30 years ended May 1932, stocks gained only 0.9% annually after inflation.

If a portfolio of stocks, bonds and other assets earns a 5% annualized return after inflation, you would need to save nearly 12% of your pretax income for 30 working years to sustain a constant level of spending through a 30-year retirement.

At a 4% real return, you'd have to save more than 15% of your pretax income, according to McQuarrie and Bernstein. If your portfolio earns 3% after inflation, you'll have to save nearly 21% of what you earn for 30 years.

Even if you work for 40 years and retire for only 20, you'd have to save 10% of your income to sustain your spending if your portfolio generates a 3% net return.

As many analysts -- and retirees! -- have pointed out, retirement tends to sort itself into three approximate phases: go-go, slow go and no go. In the go-go years, typically in your late 60s and early 70s, you're in frequent motion, focusing on fitness, hobbies and travel. From your mid-70s to mid-80s, you might find less strenuous ways to savor life. In your 80s or 90s, you'll likely be much less active.

The resulting pattern of retirement spending is high in the go-go years, lower in the slow-go years and often higher in the no-go years.

What investors must never forget is that market returns also have three basic phases: good to great, middling and miserable. To counteract the consequences of miserable long-term returns, you have only three choices: Save more, work longer or take more risk.

Saving more is by far the easiest and safest.

Write to Jason Zweig at intelligentinvestor@wsj.com

(END) Dow Jones Newswires

September 05, 2025 10:00 ET (14:00 GMT)

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