Sunday, January 28, 2007

Don't Worry So Much About Saving Enough for Retirement

The NY Times discusses something I have commented on from time to time. Most people in the US end up saving enough for retirement. Poverty is concentrated in fact among families with children rather than seniors. The retirement planning tools provided by brokerages and funds management firms tend to over-exaggerate how much you need to save. As Lawrence Kotlikoff comments in this article - you could end up squandering your youth rather than your money which you will likely come to regret. My mother has a high net worth but hardly at all touches the income from these investments. She primarily lives on government and employer pensions (the employer pension from my father's employer is very low). She gets free government health care and owns her own apartment. Sometimes I try to persuade her to spend more. The main point is that the research also shows that the old spend less than the young. You only need to replace what you spend and that spending shouldn't include things like mortgage principle payments, spending on children etc....

I'll probably end up with "too much saved" (even though I had nothing in a retirement account till age 31, and a negative net worth for most of my 20s) but I am still saving rapidly now because I don't plan on retiring at 60-65 but becoming financially independent long before that. IMO my $1million goal is more than sufficient for achieving that as long as after I reach the goal I at least maintain the inflation-adjusted value of the money.

5 comments:

digerati said...

I think it's a good point: you can't betray the lifestyle you want for most of your life just for a better retirement. That's not worth it.

But I also can't help but think that NY Times is just trying to get readers by saying the opposite of what's been said lately.

You have to remember that saving for excclusively retirement means usually a 401k and IRA. That tops at about $20,000 a year. The other money you save should be used for your life before and after retirement. You can cash in investments to buy the car of your dreams for example (and an example that makes much more sense before retirement.

Read more at Successful Personal Finance.com

fin_indie said...

Lots of folks blogging on this one. I need to go read the article, but just from the comments in the blogsphere, I tend to agree with you: most people can retire on a lot less than money managers would have you think. I like the idea of posting contrarian stories to sell more papers. Brilliant!

mOOm said...

It's like asking a realtor or mortgage broker how big a house you should buy :)

Anonymous said...

Hi mOOm. It's Stealth. I read the article. Good but scary. Your mom has a pension, albeit small but it's there and she lives in OZ a slightly more cradle to grave nation with some basic medical baked in for everyone.

With so few pensions around anymore, I'd go woth conservative and over saving. We Yanks (or Septic Tanks, if I remember my Ozzie slang) don't need reasons not to save. I do buy in to the, it may cost less than you think idea as long as you own a home. Otherwise, I agree that this whole ideas sends a bad message. Good article though and this whole thought process is gaining momentum as of late.

mOOm said...

Hi Stealth - my Mom actually hasn't been in Australia since about 1961 :) A lot of the financial advice out there in the media is cookie cutter advice that is designed to stop the average person doing dumb things. Some people need to realize they are more sophisticated and it doesn't neccessarily apply to them. Maybe this is a sign I am getting old, but seems depressing to read about 22 year olds worried about saving for "retirement".