In “Why It’s Hard to Know How Much Retirement Savings is Enough” I evaluate recent research on optimal retirement savings. The AARP and the Social Security Administration advise people to have at least ten times their annual salary saved by the time they retire. This is a good rule-of-thumb, and most economists endorse it. Recently, however, some have argued that it may be too high. They have the story wrong.

John Karl Scholtz and Ananth Seshardi at the University of Wisconsin say that calculations are biased upward because they fail to account for the costs of raising children. Parents’ financial requirements are much greater when they have children. As soon as their kids grow up, their financial burdens fall. Calculating financial needs as a portion of middle-age income, which must support both parents and children, overestimates what two people really need in retirement.

This is a nice story, but it is unrealistic. On average, parents’ retirement balances increase by only 1% when their children leave home. Exactly why is unclear, but it suggests that Scholz and Seshardi’s story is misleading, and traditional rules-of-thumb for retirement saving are not exaggerated.