Socking Too Much Away
Forget the common assumption. Some people may be saving more than they will need for their golden years
What about medical costs, which are rising faster than inflation? Bernicke doesn't think health expenses will grow enough to make up for lower spending on things like travel, entertainment, clothing, and transportation. As people progress through retirement, "health costs are going up but at a slower pace than everything else is going down," he says.
Sitting at home. Bernicke's spending theory makes sense to Robert Brokamp, editor of Motley Fool's Rule Your Retirement newsletter. "The average 75-year-old doesn't require as much stimulation and entertainment. You get to a point where you don't feel like going out that much; you're happy sitting at home and reading books." Medical problems are clearly a factor in keeping older seniors in their easy chairs: A 2000-2002 federal survey found that the percentage of Americans who rate their health as only "fair" or "poor" jumps from 23 percent in the 65-to-74 age group to 35 percent among those 85 and older.
But Brokamp still doesn't like the message that Bernicke's research sends. The risk, he says, is that it will give people an excuse to save less. "The statistics show overwhelmingly that the average person doesn't have enough for retirement. The last thing most people need is something to [make them think], 'I don't really need to save that much.'"
How can you make sure the amount of money you're saving for retirement is a Goldilocksian "just right"? It's an especially dicey question when workers have more control over retirement savings than ever before because of the demise of automatic, no-hassle pensions.
The numbers tell the story: The portion of American families with only a defined pension plan declined from 40 percent in 1992 to 24 percent in 2004, according to a report released this month by the Employee Benefit Research Institute. But the percentage of families with 401(k) plans, which allow workers to make choices about retirement savings, jumped from 32 percent to 74 percent over the same period.
With greater decision-making power comes greater stress. "The younger generation worries more about [retirement]," says Marilyn Began, 69, a retired schoolteacher in The Villages, a retirement community near Orlando. "We just kind of figured we'd manage. I would suspect most people in our generation felt that way." Thanks to years of saving, Began and her husband, John, have a healthy nest egg that should last through retirement, she says. "We kind of do what we want now. However, we do live modestly."
To get a better handle on your own situation, consider consulting one of the many retirement calculators that are available online. They'll give you an idea of how much money you need for retirement or, if you're already retired, how long your savings will last. But the calculators come with their own pitfalls. "The big mistake that people make is failing to take uncertainty into account," says Christopher Jones, chief investment officer for Financial Engines, which provides advice to investors. "You want to have a plan that doesn't have you on the street or eating cat food if the market goes down 25 percent over a year or two, which clearly happens. You don't want to assume you'll get 8 percent each and every year."
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