David Kennon, Kennon Financial
There is an insidious contagion spreading itself across America. It seems to only affect adults, mainly those nearing retirement or already retired. Unchecked, this virus could sabotage the lives of countless Americans. What is it? Oversaving.
It may sound crazy, but the trend of oversaving is very real. According to a Forbes article published in 2016, on average, Americans are dying with twice as much in savings as on the day they retired.
Of course, about half of the country does not need to worry about oversaving. In fact, if anything, they should start to worry about saving more. But I’m not talking to them. I’m talking to you.
One of the things I love most about my job is that I often get to pleasantly surprise my clients with this news, You are more financially prepared for your retirement than you realize.
Why do people oversave?
There are a lot of reasons people give for continuing to save during retirement, but they all really boil down to fear and misinformation. If you feel like you have to hoard every penny, you’re not alone and it’s not your fault. Your parents survived the Great Depression. You’ve watched pensions disappear, mortgages rates skyrocket, and banks fail. It’s no wonder you feel safer saving every last dollar until you die.
But you don’t have to. You can spend money during your retirement.
Listening to the mainstream financial news on TV, you might think that most retirees are dying destitute, but that is not the reality. Only 12% (source: 2015 Kaiser Health News) of Americans die with no savings remaining (only social security to live on).
What are the signs of oversaving?
Oversaving has a few tell-tale symptoms to watch out for. If you are experiencing any of these, I advise you to read more Retirement Revolution articles and call me in the morning.
Symptoms of Oversaving
- You continue to work even though you have enough assets to retire comfortably.
- You worry about outliving your money, even though you have plenty of financial resources to live a long and fulfilling retirement.
- Once retired, you refuse to spend any of your savings because, well……you “just never know.”
- You feel like you’re broke, even though you may have several hundreds of thousands of dollars in the bank. That money isn’t yours; it belongs to “retirement.”
- When your spouse suggests you splurge on an African safari, you spit out the water you were sipping on.
How do you know if you are an oversaver?
Here’s the formula:
Your Retirement Budget + 20% < Your Social Security
- Your Spouse’s Social Security
- 5% of your retirement savings
Does that formula take you back to your high school calculus days? Don’t worry; it’s not that complicated. Let’s break down the numbers.
- Figure out how much cash you need on a monthly basis in retirement (here’s a helpful budgeting worksheet)
- Add 20%. You need to give yourself a little room for unexpected expenses.
- Once you determine that number, figure out how much you and your spouse will receive in social security. I encourage you to take my social security timing class, if you haven’t already.
- Add in any traditional pensions, rental income, or any other retirement income sources.
- Lastly, take 5% of your retirement portfolio. To keep everything as a monthly number, divide that number by 12.
- Add up those income numbers. Does it come out to more than the budget +20% number? If so, you win retirement!
Here’s an example:
Bob and Barb Brown are both 62.
Bob’s social security: $1500/mo
Barb’s social security: $1300/mo
Barb’s corporate pension: $1000/mo
Bob and Barb’s Retirement Savings: $600,000 (5% is $30,000 or $2500/mo).
Bob and Barb’s Retirement Budget: $5,000/mo
$5,000/mo +20% = $6,000/mo
Is $6,000/mo LESS THAN $1500 ss + $1300 ss + $1000 pension + $2500 investment income?
Yes! It’s $6300 total, in case you don’t have your calculator out.
Bob and Barb have won retirement!
A new way to think about retirement.
Think about it. Many retirees and those preparing to retire are so preoccupied with saving, so worried about not losing any money, so afraid of running out of money during retirement, that they forget what the money is FOR. Your financial statements are not just made up of ink and paper. They represent much more: experiences, freedom, opportunity.
Imagine, millions of Americans who have worked hard all their lives, saved their whole lives, only to waste what should be the best years of their lives during retirement by never spending any of the money they’ve so carefully socked away!
You deserve an awesome retirement. But, you’re going to have to take it back.
You’ll have to take it back from the financial news that wants you to stay afraid, and the financial planners that want you to keep saving because their compensation is based on your account value. You have to take it back from yourself, changing your mentality and embracing the idea that you can spend money during your retirement without fear.
That’s why I started The Retirement Revolution. I want to empower you to live the retirement you deserve.
Don’t believe the fear-mongers. Retiring is not as scary or uncertain as you may believe.
Instead of anxiously looking to the future, focus and prepare for the new life coming your way. Allow yourself to enjoy the fruits of your labor. Allow yourself to live the life you deserve.