Are You Saving Too Much for Your Retirement?

Retirement can be a time to reap the benefits of your lifetime of work. Keep in mind that you will still need an income and you may need more money than you think.

Are you saving too much for your future retirement? Everyone has seen ads about “spending your way to greater wealth” or “take home $5000 per month from your kitchen table without having to work hard” and other scams that sound too good to be true. That is usually because they are too good to be true.

A recent article by a financial planner suggested that household expenditures actually decline as retirees get older. The result is that under traditional retirement planning, consumers tend to oversave for retirement, underspend in their early years of retirement, or postpone retirement when it is not necessary to do so. In other words, it is okay to spend money early in your retirement years because you won’t need it later on.

There is a big problem with this contention according to another financial planning expert, Jonathan Clements of the Wall Street Journal. If your TSP has a couple of million dollars and has been invested in the I fund for the past couple of yours, you may be saving too much money.

But the contention you are saving too much for your retirement is too good to be true for many Americans.

Retirees spend less as they get older. That is not a big surprise since most people nearing retirement have already figured out that hitting the playground to play a game of pick-up basketball was a lot of fun a couple of decades ago. Playing a strenous game on a hot summer day for someone in his sixties is not as appealing and can lead to an unexpected heart attack or trip to the emergency room for lesser injuries.

Older people often travel less. They may not want to leave home as much. Expenses may decrease as they are spending less on restaurant meals and gas for the car that sits in the driveway most of the time.

People who are 75 and older usally spend 10% less per person than those who are 65 to 74. But, unfortunately, their decrease in spending may not be just because they don’t feel like leaving the house.

The reality is, they may be spending less because they do not have enough money.

The US Census Bureau compiles the median wealth for all households in different age groups. American households that are headed by someone age 75 and older do not always have more money than younger people. These seniors have a typical household net worth of $100,100. Those households with a head from 70 to 64 have about $120,000 and those from 65 to 69 have about $114,050.

That may not sound too bad but the vast majority of the net worth for older Americans is based on the value of their house. According to the Journal, when the value of a retiree’s house is removed from his net worth, the real assets of households with someone who is 75 and older is just over $19,000.

When people retire, they tend to spend more in the early years of their retirement. Many retirees will actually spend more than they did when they were working because of trips they delayed taking until they retired, purchase of new toys now that they have more time to use them, etc.

Money spent during early retirement years means your income will decrease as you get older. That money will not be earning interest or increasing in value as your stock portfolio rises.

Most federal retirees are going to be fairly well off. They are not the richest Americans but they have a better retirement system than most. And, unlike most private companies, Uncle Sam allows a federal retiree to carry over health insurance into retirement. Many baby boomers also have a defined benefit plan that keeps on paying an annuity regardless of age or how much they put into the system during their working years–and a COLA keeps the amount at a higher rate each year.

Many people who retire at age 65 (or earlier) presume they won’t need their money after they would have been 80. But people are living longer and the age of death is going up as medical science prolongs our average life spans.

Enjoy your retirement. You have earned enjoying yourself after leaving government service. One caveat: If someone tells you to keep spending today because you will not need the money tomorrow, that sounds enticing and sounds too good to be true. And, unfortunately, it probably is too good to be true. Watch your TSP account and keep your investments growing during your working career.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47