Should You Save Less for Retirement?

Physician's Money Digest, May 2006, Volume 13, Issue 5

Journal of Financial Planning

Money

Money

Many financial experts will advise youto store as much money for your nest eggas you can while you are still working. Theyalso tell you to conserve as much of yourassets as you can in your early years ofretirement to make sure you do not outliveyour funds. What if future retirees are actuallysaving too much now and can spendmore during the early years of retirement?Ty Bernicke argues this point in the. He is convincedthat retirement planners usuallyoverestimate your future needs because offlawed assumptions that involve futurespending. The general consensus amongfinancial advisors is that retirees will need70% to 80% of their preretirement incomebecause they will require less money asworking expenses fall and savings slows.But Bernicke contends that an individual'sspending will continue to decrease as theysettle into retirement rather than rise withinflation as traditional belief holds. In a subsequentarticle, offers an example ofBernicke's theory at work. Suppose you andyour spouse would like to retire at age 62with an estimated retirement income of$61,000 a year after taxes. Conventionalplanning would factor 3% yearly inflationinto the calculations. By age 75, your annualafter-tax needs would rise to $90,000;however, Bernicke says that people aged 75and over spend 25% less than retirees aged65 to 74, according to the Bureau of LaborStatistics Consumer Expenditure Survey. Asyou become older and less active, you tendto spend less. Instead of $90,000 at age 75,our example retiree will need closer to$54,000. Although Bernicke's "reality planning" is appealing, warns that youcannot judge the spending patterns orneeds of previous generations with futureretirees. In addition, medical advancementsand longer projected life spans will allowfuture septo-and octogenarians to be moreactive than in the past.