Saving Less Than You Think

One of the biggest worries for new retirees is that they will run out of money. However, there is now evidence that the opposite seems to be happening, retirees are not actually spending enough.

Researchers at Texas Tech University stated, “Rather than spending down savings during retirement many studies have found the value of retirees’ financial assets held steady or even increased over time”.

The authors found that many retirees do not spend more than their annual income from Social Security, pensions and their investments. As a result, they never sell down the principal on their investment portfolios and therefore typically see their wealth increase over time.  There is even evidence that retirees take distributions and reinvest them in other financial assets within their estate.

So, what percentage of retirees do sell down their assets in a given year?

About 1 in 7, according to the Investments and Wealth Institute.  Across all wealth levels 58% of retirees withdraw less than their investments earn.  26% withdraw up to the amount the portfolio earns and 14% are drawing down on the principal. As a result, more money is left to their heirs.

The average retired adult in the US who dies in their 60s leaves behind $296,000 in net wealth, $313,000 in their 70’s, $315,000 in their 80’s and $238,000 in their 90’s. This suggests that the fear of running out of money in retirement is a bigger threat to retirees than actually running out of money.

However, with Millennials and Generation X, around 77% believe that the State Pension will not be there for them when they reach retirement, although the complete elimination of these benefits does seem unlikely.  But that would definitely make a significant difference to the retirement calculation.

The bottom line is that you may need to save less than you think, but the closer you get to the actual number you calculate, the more you are reliant on living for a set period of time.  And running out of money before running out of life is not an attractive proposition!  So, it always makes sense to have at least a little in reserve.

If you would like to find out what your number is – the amount that you need to save for your retirement – then please contact us and one of our expert Wealth Strategists will be pleased to speak with you.