The next topic in my Using Debt Responsibly series is on how we use other people’s debt (government and businesses) as we save for retirement.

Why can you never seem to get a straight answer out of financial planners when it comes to how much to save each month? The simplest answer is that there are a TON of variables that will affect the outcome.

• Market performance
• Interest/inflation rates
• Portfolio allocation
• What age to retire
• Where to retire
• What standard of living
• How long to plan to live in retirement
• Your health

Because of this crazy level of complexity most people throw up their hands and hand their money to a financial planner. But the market does crazy things and not all advisors allow you to have your assets outside of stocks and bonds (because they don’t make money on it). What should you do then?

Learn the basics of how the market works. This is too important to blindly trust the advice of someone else. I highly recommend Ben Graham’s book The Intelligent Investor. Graham is the father of value investing and taught Warren Buffett. Knowing how to read the overall market conditions and rebalancing your portfolio is NOT the same as trying to time the market. Understanding the market is key to avoiding the worst of the downturns.

For example, right now is a bad time to be in the market. Stocks are over-priced by every measure. Bonds are too expensive due to suppressed rates. Real estate is over priced because of rates being held low for so long. There’s nothing wrong with moving mostly into cash or at least not buying new shares and building up cash for when the market tanks. Who cares if you miss out on the last crazy push to the top?

Don’t lose money chasing the market. A 50% loss requires 100% gain to recover. While it’s true that you WILL lose money at times, some losses are avoidable by simply understanding the market and rebalancing. Part of value investing is buying what’s unloved by the market because of its cycles.

There are other types of assets, not just stocks and bonds. There’s also real estate and commodities (the most notable being gold and silver). Plus you can always just hold cash in the bank.

How much should I save then!? It’s more important to know how much in total you need to retire (in today’s dollars); and how to track the march of inflation to know what that translates into in future dollars ($1 in 1913 is the same as $20 today).

You need to decide on a few items to figure this out.

• how much you’ll need per month in retirement (in today’s dollars), minus whatever pensions or social security you expect to have.
• How long you still have to save and how much you currently have saved.
• How long you plan on living in retirement.

Do the math for your situation. But I suspect if you do you’ll find you have to save somewhere around $500-$1000 per month if you are just getting started in the workforce.

I say all of this in the hope that you will take some interest in our financial system. It is a twisted thing – debt based and debt driven – and understanding how and why will help you avoid being on the losing side of it.