Saving too much?

[camberiu]

So...it seems that we are being manipulated by the financial institutions to "over save"... :

http://finance.yahoo.com/expert/article/moneyhappy/24438

 

[Helen]

"Consider a recent study conducted by Paul Smith and Lucy McNair of the Federal Reserve Board, and David Love, an economist at Williams College. They found that 88 percent of all households with breadwinners over age 51 had accumulated sufficient resources to finance adequate consumption in retirement.

A separate study by John Karl Scholz, an economist at the University of Wisconsin, Madison, and two other researchers found more than 80 percent of households headed by Americans born between 1931 and 1941 have accumulated their optimal wealth targets for retirement.

The other 20 percent missed their goal by a relatively small margin, according to the study published in the Journal of Political Economy."

I find this really hard to believe. I honestly don't know how many people are going to be able to retire. Pensions are going away along with health care for retirees. I also don't think most people understand the basics of retirement planning.

 

[Nords]

I find this really hard to believe.

If this was the case you'd think that the researchers, and the financial institutions manipulating us, would have ER'd years ago...

 

[martyb]

Saving too much?? Yeah, I wish! That's not a problem I have at this time. I'm working on it, though!

 

[jazz4cash]

...............88 percent of all households with breadwinners over age 51 had accumulated sufficient resources to finance adequate consumption in retirement.



yeahbut, the actual report indicates thier definition of adequate consumption is $9,000/yr/person. It's pretty twisted to take this data and extrapolate to the idea of "saving too much".

 

[Rich_by_the_Bay]

I think I have a basic understanding of the math related to the conventional wisdom: 4% SWR and 25x expenses, diversification, etc. Yet I confess that the risk aversion built in to the CW really does seem to require a staggering amount of overkill and savings. If you truly require a >= 90% chance of maintaining your original spending power for the rest of your life, it seems you have little choice.

Clements' recent WSJ article about setting aside 15% of your nest egg at retirement for age 85+ annuitization or conservative drawdown, then spending down the remainder in the earlier years hints at what may be a more realistic approach of staging your retirement to better meet your lifestyle and elder years.

Assuming that you don't need or want to leave your entire initial nest egg value to your heirs, my intuition tells me that there may be creative and safe ways to live well on less than the CW suggests. Some form of annuitization or burndown, self-funded or otherwise, seems to be a common theme.

Or maybe it's just wishful thinking. Meantime, I'm sticking with the CW til someone figures out and backtests some alternatives.

 

[Nords]

then spending down the remainder in the earlier years

I still have a hard time figuring out what we'd be spending it on.

If $25K dropped onto the computer desk in the next 10 minutes then we'd be ready to relandscape the yard. But we were going to do that anyway in the next couple years. If the market went to hell then we'd just stretch out the project and do more of it with our own sweat equity.

If $50K dropped then what would I do-- buy a Lexus to take care of? Fly first-class on a trip I'm not really interested in yet? Go down to Ke'eamoku Street looking for... well, you know where this is going. Charity, sure, but I'd probably do a crappier job finding the right place for it.

It's not "What are we saving it for?" as much as "Where's its spending value?"

 

[d]

do note that the conclusions are based upon the annuitized value of all assets (including personal residence, autos, the p.v. of future wages, soc.sec. etc.). i don't know how many here would be willing to liquidate all assets, but based on previous topics, i've a good idea that precious few would be willing to annuitize 100% of the pot.

 

[Jarhead*]

I still have a hard time figuring out what we'd be spending it on.

If $25K dropped onto the computer desk in the next 10 minutes then we'd be ready to relandscape the yard. But we were going to do that anyway in the next couple years. If the market went to hell then we'd just stretch out the project and do more of it with our own sweat equity.

If $50K dropped then what would I do-- buy a Lexus to take care of? Fly first-class on a trip I'm not really interested in yet? Go down to Ke'eamoku Street looking for... well, you know where this is going. Charity, sure, but I'd probably do a crappier job finding the right place for it.

It's not "What are we saving it for?" as much as "Where's its spending value?"

Nords: Couldn't agree more.

Actual conversation with my two adult children a couple of months ago:

Kids: "Why don't you and mom take a cruise someplace?" Me: We took a cruise about 20 years ago. You forgot? After 2 days, I was thinking I'd rather be on a fly-stream, or golf course. Your mother was sea sick the whole time."

Kids: "Why not buy a new car." Me: Why? Kids: Because they are more reliable. Me: Haven't let us down yet. And if they break down, so what, I
haven't got any committments that would handicap anybody."

Kids: "Why not go out to dinner more often." Me: If you haven't noticed, we live about 25 miles from the nearest restaurant, and besides the fact that your mother is a great cook, it is too much hastle to make that worthwhile."

Kids: "Why not sell your property, and buy a condo someplace". Me: "Why"
Kids: "Because it's too much for you to handle". Me: "When's the last time I asked you for Help"? Kids: "Sorry I brought it up".

In any case, I am in total agreement with you on this point, and have no misgivings about leaving something on the table.

We pretty much do what we want, when we want, and feel no pressure regarding spending money on anything that won't improve what we value.

 

[Rich_by_the_Bay]

Nords: Couldn't agree more. In any case, I am in total agreement with you on this point, and have no misgivings about leaving something on the table.

We pretty much do what we want, when we want, and feel no pressure regarding spending money on anything that won't improve what we value.

Yep, it's good to be financially independent, as most of us here either are or will be. Withdraw the "safe" way, want for little, and leave our kids a nice present.

Must be different for the other 90% though.

 

[Sandy]

I also don't think this article was talking about RE. If you work to 65-70 (maximize SS), the amount of years you have to fund are greatly reduced and offset by a higher SS. You can liquidate all assests, get an annunity and do ok, if the lower income and shorter time frame is what you are looking for.

 

[kat]

I find a lot of this hard to believe. I'm on an email list for the Retirement Research Center at Boston College, and their forecasts and studies seem genuine to me.

One thing that appeared in the NY Times article about "saving too much" was a one liner that it does not apply to single people. That's a very significant number of people.

 

[Eagle43]

Well, I've got sufficient money for my independence. Each month the pile gets a little higher. My brother told me to buy a Lexus. I replied, "why?"

I promise to spend it, really I will, one of these days.

 

[W2R]

What a ridiculous thought. We're saving too much? Uh huh. Right. And the sun rises in the west. :

Too many people base their thirty or forty year retirement planning on an 8% withdrawal rate or even higher. Obviously they are not reading the same materials I am reading. Too many baby boomers are thinking that if they just put a little into their retirement accounts now and then, it will "all work out". After all it did for our parents' generation, for the most part.

Unfortunately, times have changed. We baby boomers have seen enough unexpected upheavals in our plans already (pensions collapsing, bear markets, inflation back in the 1980's, you name it). Having enough for a backup plan is the only sane approach for those of us who do not want to work even part time in retirement.

I agree with the author about some of the online retirement calculators. They aren't perfect and some of them are awful. Firecalc is terrific but it is still a tool, not the Delphic Oracle (close, but not yet! ). We still need to use our own judgment and analytical capabilities when plugging numbers into any online retirement calculator, rather than simply trusting our fate to the answers we receive. :

So many people approaching retirement age do not have a paid off house, investments, or money in the bank, and they owe a fortune on their credit cards. Some expect they will want to work forever (ever seen a 90-year-old in poor health working if he didn't want to work? That is not going to be me.) I have no clue as to what, if anything, the rest of these "spenders" are thinking when it comes to retirement.

 

[W2R]

the actual report indicates thier definition of adequate consumption is $9,000/yr/person. It's pretty twisted to take this data and extrapolate to the idea of "saving too much".

$9000/year? That is $750/month. And that's adequate consumption? Even in the South, I would be hard pressed to pay for food, shelter, utilities, and medical care on $750/month (even if that was after taxes, which it may not be).

Granted, somebody else mentioned that singles were not to be included in the broad conclusions of the original article. Still, I wonder why not. There are sure a lot of baby boomers who plan to retire as singles. (Me, for one). OK, suppose I was a couple and had $1500/mo to live on. After taxes, that might be $1100-$1200/month. And, I presume that eventually one would die and the social security or pension earnings would decrease. (sigh) I am frugal, but that doesn't sound like much.

A separate study by John Karl Scholz, an economist at the University of Wisconsin, Madison, and two other researchers found more than 80 percent of households headed by Americans born between 1931 and 1941 have accumulated their optimal wealth targets for retirement.

That would be people between age 65 and 75 right now. These are people who are already retired, not those who are planning to retire. And even 20% of them apparently missed the mark.

 

[d]

Granted, somebody else mentioned that singles were not to be included in the broad conclusions of the original article. Still, I wonder why not.

at least in part it may be that couples are assumed to require 1.66x that of singles (instead of 2x) ... this is likely reasonable, but does not take into consideration that most couples will eventually become a single at some point.

what i find most amazing re this study is the observation that the median "young retiree" household has $14.2k of "financial wealth" with which to support retirement.