OK. Now I'm confused. Really.
I just perused an article relating to retirement and saving. I thought I was doing the right thing, but guess what -- I might be saving too aggressively for my golden years. Can you dig that?
Financial planner Ty Bernicke, of Bernicke & Associates, performed a study of data from the Bureau of Labor Statistics that seems to suggest that people might not be required to put away as much money for retirement as previously thought. What Bernicke's thesis boils down to is this: In contrast to the widely held notion that people spend either a similar or a higher amount of money per year after leaving the work force permanently, they actually spend less. Even accounting for inflation, a retiree's nest egg will probably last a whole lot longer than current planning calculators would have you believe.
I'll let the reader check out the above link to see the numbers and examples given, because I'm not here to either dispute or support the conclusion drawn from them. I just want to state that no matter what a rigid analysis of the Bureau of Labor Statistics might say, you need to save more. Always. No exceptions.
Yet I know firsthand that a lot of us tend to have a negative view of saving. Putting money away in anything approximating an aggressive manner means one thing: living below your means. And living below your means is perceived to be equivalent to another element: not having any fun. People will crucify you for that. Let me explain by example.
A friend of mine constantly chastises me for saving money. When he sees my inability to hang out all the time linked to my immutable, self-imposed garnishment of wages -- which are immediately funneled to stocks -- he disapproves with vehemence. He wonders why I bother investing in blue-chips such as Coca-Cola
I understand his viewpoint -- I mean, who among us doesn't want to have fun? Having fun in this world requires the disposal of cash, however. Dispose enough cash, and you are starting to approach your means level; dispose even more cash when you get there, and you enter a lifestyle where you are living beyond your means. Do that, and you have no cash for stocks (heck, you're probably incurring debt by that point).
This is why I want to disabuse anyone who came across this article and possibly took away from it the idea that saving for retirement doesn't have to be a Draconian exercise in self-denial. Want to know something? It probably should be a Draconian exercise. I know, I'm no fun, I'm boring, and I sound alarmist. I perhaps even sound self-righteous, maybe even morally superior, as if I know what's good for everyone. Trust me, the fact that I don't know a lot of things is why I want to remind people to save aggressively (even more aggressively than the supposedly overestimating calculators would have you put aside) -- I have absolutely no conception of what the future will bring me. Because of that, I want to invest as much money as I can possibly bear to surrender in the equities market .
I suggest you do as well. Even if financial planners are indeed being too conservative, I say be even more conservative. Plus, here's an important point to consider, one brought up by Robert Brokamp, our resident retirement Yoda, while this piece was coming together: Do people spend less in retirement because they have less money or because of a natural inclination? Put another way, we don't know the mechanism behind what the data seem to be showing. Until we do, it's best to keep on saving. Live below your means, throw some funds into the market on a regular basis, and enjoy the boring accrual of dividends and capital appreciation over time.
More articles on retirement:
- 60-Second Retirement Plan
- A Scary Bedtime Fable for the Future
- The Worst Retirement System
- How Much Will You Need to Retire?
Be sure to check out the Rule Your Retirement newsletter. It's full of solutions for the challenges we all face in preparing for the inevitable day when we no longer will be drawing a steady paycheck.