Retirement Might Be Cheaper Than You Think

September 21, 2017

If you’ve ever met with a financial advisor/consultant/planner/representative, etc. (think “salesperson”), he or she may have given you a colorful graphic that shows how shockingly expensive your future retirement is going to be after inflation drives up the cost of everything you are going to need to live your future life. Not surprisingly, a survey from the TransAmerica Center for Retirement Studies confirms that outliving savings is a huge fear among retirees.

Maybe not

The logical solution then is to invest as much money as you can for as long as you can to avoid going broke before you go on to the great beyond, right? I’m going to go out on a limb here and say something very un-financial-planner-like: Maybe not.

Don’t get me wrong. Saving and investing for retirement is something we all need to do. While a graph that shows exponential increases in our future spending needs can certainly be an effective way to stir up the emotions and sell mutual funds and annuities, does it really describe your likely future spending needs?

Looking at data from actual retirees

Being the nerdy analytic that I am, the reality of retirement appears to paint a different picture when we take a close look at real data associated with people who have actually retired and had to spend the money they saved during their working years. This might be a bit of encouraging news if you are frustrated by having to set aside so much of your current income for your own unpredictable and uncertain future.

A 30% decline after age 75

According to financial planner colleague, Michael Kitces, ongoing data compiled by the Bureau of Labor Statistics’ Consumer Expenditure Survey and the National Institute on Aging suggests that retirement spending after age 75 appears to decline by as much as 30% from spending that takes place during the first half of a typical retirement. Furthermore, even after accounting for increasing health care costs (as we age, more stuff wears out and needs a doctor’s care), the decline in overall retirement spending continues to outpace rising health expenditures.

Don’t stop saving though

Hopefully, I haven’t encouraged anyone to give up entirely on putting money aside for retirement. At the very least, we should contribute to an employer’s retirement plan at whatever level helps us qualify for the most matching dollars. Free money is free money; take it! It’s also important to point out that you might need to set aside a bit more of your income to put your savings efforts on track with your future needs, but maybe not as much as those financial salespeople would have you think. Being able to replace at least 80% of your future retirement income is a good rule of thumb, for instance.

How much do you really need?

How can you quickly see if your future savings will replace at least 80% of your pre-retirement income? A good way to balance your retirement savings efforts with your desire to satisfy occasional YOLO impulses is to run a quick retirement income calculation. Fortunately, there are any number of free retirement calculators available on the Web to help you do this. Here at Financial Finesse, we are partial to our own Retirement Estimator Calculator, of course.

In the spirit of unbiased (okay, somewhat less biased) financial education and guidance, here are a few more calculators you might want to check out, including the Ultimate Retirement Calculator  or AARP’s Retirement Calculator, as well as Bankrate’s Retirement Calculator Center.

It’s still a good idea to save for your future retirement, just take any charts and graphs showing a huge shortfall from a financial salesperson with a grain of salt — he/she only makes money by convincing you to give him/her more of yours!

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