Most people are worried about running out of money in retirement, but could this lead to you retiring with more money than you need?
It sounds like a nice problem to have, until you think about what it really costs you.
Costs you? I hear you ask.
Yes. If you are retiring with more money than you need for your retirement, that means you have worked longer than you needed to and you could have potentially retired much earlier and enjoyed a longer retirement.
This might not be a problem if you enjoy your work, but many people are counting down the days until their retirement and will sorely regret working one day longer than they needed to.
Financial adviser Cameron Dickson, managing director of The Moreton Group, told nestegg.com.au that seven out of 10 people over the age of 55 who came to his company for financial advice were surprised to learn that they could actually retire sooner than they initially thought.
He says that in many cases oversimplified retirement calculators are to blame for giving people a false target for their finances.
“They perpetuate a myth that Australians can’t afford to retire and exacerbate anxiety in a huge proportion of working Australians looking to change their lifestyles from work to retirement in the next five to 10 years,” he said.
“Stop worrying about what age you should retire at and how much money you have in super; the first step is to find out what’s possible.
“If you plan what you want to do and work backwards, you will probably find you have enough money to retire earlier than you think. People should think about what’s possible first.”
Investment website Investopedia.com also explains that the general assumptions of many retirement calculators can lead to saving more money than needed for retirement.
These calculators have too many general assumptions built in and don’t provide enough personalisation for your own situation, explaining that most automated programs won’t be able to predict how much of your pre-retirement income you will need or your spending throughout your retirement years.
You will often hear it said that you will need 80 per cent of your current income to maintain a comfortable lifestyle in retirement.
This has been questioned by some experts.
David Blanchett, head of retirement research at Morningstar, wrote a paper on Estimating the True Cost of Retirement, which found that basic replacement rate assumptions could overestimate the true cost of retirement for many investors.
“While a replacement rate between 70 per cent and 80 per cent may be a reasonable starting place for many households, when we modelled actual spending patterns over a couple’s life expectancy, rather than a fixed 30-year period, the data shows that many retirees may need approximately 20 per cent less in savings than the common assumptions would indicate,” he wrote.
His research concluded that the actual range or replacement rates is between 54 per cent and 87 per cent.
The good news here is that you may be closer to retirement than you imagine, and you should get good financial advice early, to determine a target that you should be aiming for your finances.
Do you think you have saved too much money for your retirement? Do you regret not retiring earlier? What advice would you have for those who are approaching retirement? Why not share your thoughts in the comments section below?
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