Retirement: Are you Oversaving? Underspending?
After analyzing data from the U.S. Bureau
of Labor and noticing radically different
spending habits among his younger and
older clients, Certified Financial Planner
Ty Bernicke theorized, in general, people "tend to oversave for retirement,
underspend in their early years of
retirement, or postpone retirement." Bernicke contends the numbers related to
household spending projected by "traditional" retirement plans are simply
not supported by U.S. Bureau of Labor
statistics. The traditional approach to
retirement planning supposes a household
will spend more each year throughout
retirement. The "reality" approach
believes the household will spend less,
which is born out by U.S. Bureau of Labor
reports and other data.
Once Bernicke accepted the data, he then
set out to determine why. Was the
reduction in spending due to generational
differences, out of necessity, or was it
simply by choice? After analyzing various
data points that had been adjusted for
inflation and aging, results showed age
was indeed a factor in spending – even
when incomes among the age groups were
similar. Bernicke concluded the reduction
in spending was voluntary which supports the reality retirement planning model
indicating potential retirees may not need as much to retire as earlier planning methods proposed.
Source: Wealth Management Letter, 10-5-05 &
Journal of Financial Planning, 6-05
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