Is It Possible You Are Saving Too Much For Retirement?

Are you saving more than you need to?

Mature Couple by Ocean
Saving the right amount for retirement.

Is that even a serious question? A lot of planners and online calculators believe you will need around 70% to 80% of your pre-retirement income to live comfortably during retirement. However, David Blanchett, head of retirement research at Morningstar Investment Management in Chicago, believes you may be over estimating costs by about 20%.

Take into consideration when you are working you are spending money on traveling to work, maximizing your 401(k), saving up for your children's college education, finishing paying off your mortgage, and eating out for convenience. Plus, people who earn higher salaries tend to pay more on income, Social Security and Medicare taxes. Once retirement rolls around a majority of retirees see a decrease in these expenses. On the other hand, when you begin to reach an older age you will probably see an increase in medical costs.

Quite a few retirees do opt to spend the big ticket items right away when they enter retirement, like a luxury cruise or trip to Europe, leaving them with lower cost options like spending time with grandchildren. However, Blanchett found that people who have enough funds to maintain their spending habits end up reducing their costs later on in retirement anyways. This decrease in spending may be a result of old age and deterring health. For example, you may not have the strength or need to drive a car anymore, cutting down on auto and gas expenses.

So how do you know if you are saving too much or just enough for retirement? One idea is to figure out what your flexible and fixed costs will be in retirement. Once you have a good idea of this you will be able to see if you can spend more at the start of retirement or if you will need to be more frugal. Answering questions like will you still have a mortgage and are you going to help support your children financially will help you develop your savings plan. Using financial tools like a retirement calculator will help you get a better understanding of how you need to invest your money for retirement. Also, speaking with one of the Credit Union’s Financial Advisors* can help you plan better for the future.