We hear so many horror stories these days about people saving too little, but the truth is, some people actually save. too much to retire. It is possible that you have too much of a good thing…
It’s safe to say that it was my grandfather who saved the most because even though he lived for more than 30 years after retiring at the age of 65, he passed away with more money than he could have used during his lifetime. He was born in 1901, and anyone can see the impression those times made on him by his way of life. When he retired at age 65, with a net worth north of $1 million, my grandfather continued to live in the same simple house without a mortgage. He drove a car that was at least two decades old and kept a broomstick taped to the refrigerator door to keep it closed because the seal had broken years earlier.
A combination of good genes and healthy habits meant he lived to be just a month shy of his 97th birthday, but it’s doubtful he really enjoyed the fruits of all those years of flipping and saving. He never traveled, never bought himself anything beyond basic necessities, and his only pastime was watching the weather channel.
But after 65 years of frugal living, this behavior has become ingrained. He wasn’t going to suddenly start wearing Gucci loafers and winters in the Maldives.
How many people are actually saving for retirement?
David Blanchett, head of retirement research at Morningstar Investment Management, published his research findings in Estimating the True Cost of Retirement and found that many retirees actually need to save about 20% less than common retirement savings assumptions indicate.
Considering that about 40% of Americans expect to leave a financial inheritance to their children, it reveals that many retirees may already have enough for their secure future.
Why do people save so much?
There are a variety of reasons why people save so much for retirement.
Wrong experiment rules
For years, the rule of thumb has been to trade in 70 to 80% of your work wages to live comfortably in retirement.
However, Blanchett’s analysis found that some retirees can actually live comfortably on just over half of their income from work and that inflation has a much smaller effect on retirees’ spending.
So, who is right?
Well, one of the difficulties in figuring out how much to save for retirement is wading through different types of tips. Much of what you read is a one-size-fits-all formula with a lot of unknowns and a lot that isn’t about you.
Find out how much you need.
Planning can be difficult
Another problem is that there are a lot of guesses you have to make to figure out how much you need: If you retire at 65, how long will you live? What are your medical or long-term care expenses? Will you live through periods of hyperinflation or a stock market crash? Are your grown children going through hard times and need financial help?
The amount any retiree will spend in retirement varies widely based on personal circumstances and lifestyle.
Those who do not spend money are often the ones who save money
Ironically, the biggest savers are usually the ones who need the least amount of money in retirement, often because they are used to living well below their means.
You spend most of your life earning your salary. And if you are wise, you save. This habit is hard to break, especially when you start to feel good about the savings.
The thought of spending those savings you’ve worked so hard to accumulate can be a difficult behavior shift.
Fear is one of the strongest motivators. Nobody wants to end up bankrupt. The more you save, the lower your chance of running out of money.
Fear of the unknown is a reasonable cause for concern.
Many savers who save too much suffer from a disease called another year. They keep delaying retirement by just one year so they can save a little more and avoid using their savings for a little longer.
Another year can actually mean big money. Learn what another year might really mean for your finances.
Extra savings advice
If you run the numbers and discover that you’ll probably need less in retirement than originally thought, no one is suggesting you stop saving. However, make sure that the sacrifices you make in order to save for retirement do not come at the expense of enjoying your current life.
Here are 9 tips for people who save a lot for retirement:
1. Take a good look at the numbers
Many people who don’t save enough haven’t taken the time to figure out exactly how much they need. Perhaps the same is true of people who save a lot for retirement.
If you use a retirement planning calculator that’s detailed and specific enough to help you feel confident about your future, you may be better able to relax your inclination toward saving. NewRetirement Planner even lets you try out different scenarios so you can feel confident about how much you might need given different sets of contingencies.
A lot of people save because they want to be prepared for anything and everything that might go wrong. You can’t plan for everything, but here are some tips for planning for the unexpected.
- Ensure your retirement income and try to inflate and prove it
- Be insured enough
- Find out how you will fund your long-term care
- Have flexible sources of money and some cash on hand
- Worry less about optimization and more about protecting yourself from risks
Learn more about being prepared for everything that can go wrong.
3. Rediscover hobbies
My grandfather received a set of golf clubs at his retirement party—a gift that gathers dust while he sits watching the Weather Channel for the next 30 years. Is this how you want to spend your retirement years? Working and raising children often causes people to forget hobbies and activities they enjoy.
If you’ve lost sight of what you enjoy doing in your free time, work on rediscovering those passions.
Stuck on what you might want to do? Try one of these resources:
4. Develop relationships outside of work
Our consumer-driven society has trained everyone to believe that more things will make us happy, but often the opposite is true. Paying for more things means working more hours, and we forget what really makes us happy, which is spending time with the people we love.
Cultivate the relationships that are most important to you, with family, friends, and people at church or in a social group.
5. Evaluate what working and saving do for you
If you think you’re saving too much for retirement, ask yourself some tough questions. Saving too much is never a bad thing, but you don’t want to have regrets in the future. Why focus so much on the economy and savings?
Many people genuinely love their work and leisure time which gives them more stress than daily stress and excitement of their career.
Other people live to work rather than work to live. Your career may be lucrative, but is the stress of your job negatively affecting your health? You could be saving for a long retirement that you will never enjoy if the long hours and stress are making you sick.
6. Invest in things other than your bank account
Sometimes, the best savings plan is… Investing in your health, your family, and your social and intellectual relationships. Take the time to exercise, eat healthy, and enjoy people and leisure activities. If your job makes this impossible, consider a career change, even if it means a lower salary. Some of that extra savings might be better put to use on the small business you’ve always dreamed of starting.
7. Start small
If you’re saving too much, you’re probably very disciplined and not quick to splurge too much on your time or money.
It’s okay to start small. For example: You don’t have to travel to get tickets from all over the world, but you can try a weekend away at a hotel that’s a little outside of your frugal budget.
8. Slow down, take time to develop new habits
Most importantly, it is important to give yourself time to adjust to the idea of enjoying life rather than worrying so much about money.
A study found that it takes 66 days — on average — for something to become a habit. The range was from 18 days to about 3/4 of a year for people to introduce a new behavior into their lives. This research focused on relatively simple behaviors like drinking a glass of water with lunch – not an entire lifestyle change.
Of course, it is better to have too much money saved for retirement than not enough. But don’t deny yourself the pleasures of life to maximize your nest egg. Some people forfeit their lifestyle today for what they think will be their golden years tomorrow. Your golden years now.
Save for retirement, but also be sure to accumulate experiences and hours spent with your loved ones and friends. After all, this is the true measure of a life well spent.
9. Create a detailed plan to help you gain confidence that you have saved enough
Many people continue to work and save because they are not sure they have enough.
Building and managing your own detailed retirement plan is a great way to find confidence and clarity as to how much you really need.
Get started with NewRetirement Planner, the most comprehensive set of tools available on the Internet.
So, how much do you really need in retirement?
So how do you know how much savings you’ll need? While the 70 to 80% rule works well for people between the ages of 20 and 30 before retirement, if you’re nearing retirement age, a better approach is to create a detailed retirement plan.
If you think you need a million dollars to retire, you might be right…and the good news…you might be wrong! It all depends on your plan.
Create your detailed plan to see how much you really need. The NewRetirement Planner will help you:
Estimating retirement expenses
How much you need to save is determined to some extent by what you will actually need and want to spend when.
Go line by line through your current budget and document how different expenses will change throughout life. The more detail you get, the better.
Here are 9 tips for estimating future retirement expenses.
What types of retirement income will you receive?
Annuities, Social Security, and required minimum distributions (RMDs) are the most common sources of retirement income. Your retirement income balances your expenses and will make your savings last longer.
Run hypothetical scenarios
A big part of estimating how much savings you need is making an educated guess on a variety of assumptions:
- Will inflation be low or high?
- What will be your rate of return?
- Will you need long-term care?
- What unexpected expenses might you face?
- Will your home appreciate in value?
You can’t predict the future, but you can run scenarios to see how much savings you need for a variety of future possibilities.
How long will you live in retirement?
Another big factor that determines whether you’re saving too much or too little for retirement is how long you’ll be in retirement. To get this number, you need:
- One delightful number – the age at which you stop working.
- And one dreary milestone – your life expectancy.
Run scenarios for both of these lifetimes. (Use the Life Expectancy Calculator to help you hone in on this number.)
You won’t know how much you need without a plan
All of the above inputs — and more — go into determining whether you’re saving too much or too little for retirement.
The NewRetirement Planner is one of the most comprehensive planning tools available. This will help you see if you are on the right path to a secure future with too much or too little savings.