Q: It makes me nervous to think about how much money I will need in retirement. What advice can you give me?
A: Saving money creates tension. We must decide how much to put away for later instead of enjoying now, and that makes us also think about “later.” Most of us do not particularly wish to die wealthy but also do not want to run out of money. We seek to fully enjoy the fruits of our labor possible, but to be careful about it.
There is a great deal of uncertainty on knowing just how much money one will need over decades of retirement. It is a function of initially how much you will save, how long you will save, and how well your investments will perform. Much of this is at best an educated guess. Then we must add in the great uncertainty of just how long you (and your spouse) will live.
So, we plan with formulas on average historical returns. We decide on what the desired lifestyle will probably cost, make an assumption about inflation causing adjustments to future purchasing power, and then go on to estimate a joint lifetime survival estimate. Using these factors, we can at least come up with a “number” that suggests we have enough money to retire. But we must know there are no guarantees, which is a little bit anxiety provoking.
A prudent process involves periodic re-appraisals of whether or not we are likely to reach our accumulation goals. We also must re-examine our spending goals and determine if our life expectancy is different than we initially considered. Our tension over saving versus spending continues. We might assess that we will have “more than enough,” or the opposite.
Prepping for retirement years: How much is enough money?
As we enter retirement, we again are faced with how much to spend. Do we really need or want the ability to spend on a level basis for up to four decades in retirement? Is it OK to spend more in the early years of retirement since most people slow down activities and spending by their ninth decade? When we first enter this period of our lives, we are most interested in travel and doing other things that we have been waiting and saving for. Should we continue to deny ourselves the gratification of doing things we have “always wanted to do” in order to prepare for very old age?
It is tough. At times, the decision on how much to spend is easy — one is spending either way too much or much less than is reasonable. But most people fall in the middle, and have the tension involved with immediate versus delayed gratification. Most of us would have remorse if we became sick and were unable to do those things we have been saving for, and most of us know individuals this has happened to. Yet, we appropriately fear running out of money at a time when that can’t be fixed.
If you feel this tension, talk to your advisor and come up with a game plan and pace you can live with. Best of luck to you!
Steven Podnos, M.D., is a fee-only financial planner in Central Florida. He can be reached at Steven@wealthcarellc.com and at www.WealthCareLLC.com.
This article originally appeared on Florida Today: Saving too much or too little for retirement years? Check these tips
Reporting by Steven Podnos, For FLORIDA TODAY / Florida Today
USA TODAY Network via Reuters Connect
By Steven Podnos, For FLORIDA TODAY | USA TODAY Network
