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Are you saving too much for retirement?

The Rockettman lifestyle blog has explored the issue of building a nest egg for retirement in several ways. Mostly this has focused on what ‘the number’ should be when we retire.  But more recently, I have been educated on other considerations that include life expectancy and the anticipated annual spending budget. 


Retirement can be the longest vacation of your life

Another perspective offered in an opinion piece by Bill Perkins in CNN anecdotally equates the development of a retirement strategy to planning for “the biggest, longest vacation" of one's life.  In the earning years, planning a vacation involves a short-term assessment of where we want to go, how we get there, and what the overall experience will cost.  But the extended vacation that is (hopefully) the natural transition from a rewarding career to retirement takes an entirely different sort of planning. Perkins believes that most Americans may be over-saving for retirement, or under-spending in their retirement, and primarily this is linked to not understanding how spending on travel will figure into the retirement plan.


This may seem a bit of a conundrum, but I would submit that a good starting point is to identify how much you spent on vacation travel over 3-5 years before retirement to determine a benchmark budget amount for when you retire.  Otherwise, as Perkins points out, you will either “save too little”, or risk accumulating more savings than you need.

Develop an appropriate annual budget for retirement

So, it is important to have a realistic view of what your expenditures will be in the next phase. You are not necessarily going to spend less if you no longer work, or work meaningfully less hours per week. More free time means more time for travel and entertainment, so don’t expect your spending to dramatically decrease (at least initially).


Legacy giving to charities is another bogey linked to the prospect of ‘saving too much’ for retirement.  The Perkins article speaks to this prospect by suggesting that “many people will die before they get to spend all the money” they have saved.  He identifies these people as “poor in..acquiring positive life experiences” in their retirement era.  In other words, they did not have enough fun spending on themselves in retirement or plan appropriately for how any surplus of their retirement savings would be put to good use after they pass on.

Retirees have more money 20 years removed from retirement

Possibly supporting Perkins' perspective is a study by the Employee Benefit Research Institute (EBRI) that points out approximately 30% of retirees have more money after 20 years of retirement than they started with.  The contention of the EBRI is that retirement planning strategies fail to consider that annual spending will decrease in real terms as retirees reach the tail end of their retirement years.


This highlights that equal focus should be on spending and savings in the retirement planning process.  But as I have pointed out in previous blogs, the starting point is on what will get us to the ‘relaunch’ stage, which encompasses a reasonable sense over time of how projected savings off earnings will grow over time.  A financial advisor will contribute to this in a beneficial way.  This process will undoubtedly be a journey – I went through four advisors in close to 20 years before I landed on my current advisor, who ultimately helped me get across the finish line before turning 60.


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