Retirement Savings Balancing Act

The Montreal Gazette wrote an article this week about seniors carrying a “scary” debt burden into retirement. I’m always skeptical when I read statistics like these, because they can usually be interpreted in whatever manner the writer wants, but according to the article, seniors declaring bankruptcies have also increased, which is perhaps more indicative of demographics than Economics, but still interesting. The individual interviewed for the article speculated that, “Seniors are carrying more debt into retirement, they are trying to maintain a lifestyle they had pre-retirement but on post retirement income, and if income has dropped, they are increasing their debt to cover off their spending. It’s a very dangerous strategy.”

Being interested in personal finance, like the majority of people who read this blog and others like it, overspending retirement savings seems like one of those things you really don’t want to get into. If retirement savings dwindle, there is no backup source of money coming in – the plan may change from enjoying free time at the end of a career to trying to re-enter the workforce at a salary significantly below what you were used to making.

Whether you’re planning on retiring at 30 or 70, the pool of money accumulated to that point has to last until (kind of grim I know…) death. I know that I will probably obsess a little too much over my pool of money after retirement. That pool of money will, for me, represent freedom from having to work ever again.

The challenge when figuring out retirement savings at this point is how much money is necessary for my wife and I to survive in the 40 – 60 years that we won’t be working. In addition to how much money is needed, a balance needs to be made with how long we both feel like working.

My wife and I would rather live a less consumerist lifestyle and gain freedom to do the stuff we like to do….which are mostly low-cost in nature and we enjoy immensely. By the time we’re retired we will (hopefully) have achieved an understanding of “holes” in our budget and will hopefully be able to achieve the balance of having both enough money to retire and enough time to enjoy the extra hours that money will bring.

Do you worry about running out of money after you retire?

12 thoughts on “Retirement Savings Balancing Act”

  1. I worry about not having enough money before I get back in the workforce. I’ve decided to change career focus from electrical engineering to programming. I’ve taken four years off so far and have been having a grand time with the family in the process. But I didn’t invest the money properly (just had it in the bank) so it has been slowly dwindling. It has been nice to have more free time with the fam though!

  2. Well retirement is so abstract to me right now. I’m 27, in my first career position (just finished a PhD) and so it’s hard to extrapolate 20 – 40 years out.

    My parents retired last year and we were having a conversation on the weekend about how the adjustment has been. They said it was a bit rocky, but they’ve finally hit a groove. I think they’ll be fine though because they over-saved by a large amount. They’re 59 and 63, and even with 30 years for each of them, inflation, etc… they’re going to have to spend hand-over-fist to use it all up.

  3. Some people think that having debt is just a normal part of life. I have a co-worker who has been making car payments for the 15 years that she has been married and she and her husband both got new cars recently and signed on for 5 more years. They will be making car payments forever. As soon as one set of car payments are up they always get a new car.

    Adult children that require financial support seems to be a trend as well.

  4. Short answer: NO.

    I have more money now than I did when I retired nearly 5 years ago. That is, the growth of my portfolio minus the dividends I have pulled from it to pay for my expenses is a big net positive. Obamacare will be a help starting next year. And when I can begin collecting Social Security and my frozeeven n company pension in about 15 years I will be in better shape.

  5. I would never in a million years consider retiring if I had any debt at all. My goal is to have at least $600K saved up (my home is paid off and I have no debt now). I am getting pretty close to my goal, hope to reach it by 50 knock on wood!

  6. No, I don’t worry. There’s too many ways to either lower expenses dramatically if you want for a reasonable period of time to buffer up savings or to bring in income if you want. I think I would if there was a big market scare though and I was fully invested, older and out of the workforce for a long time and couldn’t get back in at my old salary to start buying the drop. And dividends were being cut.

  7. “Do you worry about running out of money after you retire?”
    Well I have been retired for 8 years with a DB company pension and one of my worries is that something should happen to the company(bankruptcy) and I end up with a greatly reduced pension. But I have absolutely no debt, own my home and I do have $300,000 in cash assets. The other worry, more likely than bankruptcy, is a return to high inflation rates like the early 80’s experienced. And there is the guaranteed gradual the gradual erosion of the buying power of my non- indexed pension due to normal inflation rates. At least the CPP I am getting is indexed as is the OAS which I will be getting next year. But my CPP is only $9000/yr which is only 20% of my current company pension. However overall, I don’t have much to complain about.

  8. “Do you worry about running out of money after you retire?”

    YES. Coming from a point that was extremely risk-averse is quite difficult for my personal goals of very early financial independence, both in the sense that my natural inclination is to avoid risks in investments and that I will likely suffer from the “one more year” syndrome until I have a more-than-substantial buffer zone built up.

    To make things even more complicated, I know I’d be willing to live on *very* little, but chances are that if I want any sort of spousal relationship it’ll mean working a few more years in addition to amass more capital and deal with the larger volatility of another’s desires.

    So one back ‘atcha – do you plan on developing more income streams than an investment portfolio before retirement? Small websites, a book or two, and occasional services seem to be in my future since I’m personally so squeamish about cutting the cord for good.

    And then there’s the story of Long Term Capital Management – perfect hedges against so many things, but not a Russian default. I think there’s a good amount of value in diversifying not just the typical financial risks (inflation risk, volatility, default risk) but also tax risk (including money in many countries and banking systems), currency risk … Von Mises was the cure to the constant fretting in my case; there is no getting around the fact that what has value is determined by others, and it changes along with their aggregate whims.

  9. A certain amount of worry is natural. But attempting to forecast inflation and investment returns over a mutli-decade period is very difficult. One could argue that there is a strong consensus to keep inflation low for now, but the politics could change over time.

    If you are targetting early retirement, I think you would need to factor in finding ways of making some money on the side. But since you are aiming for retirement, the idea is that it is something you would find interesting to do anyway.

  10. In my mind there are several key ways to plan for retirement to make sure you don’t run out of money.

    1) Do scenario testing on your retirement portfolio. Factor in higher interest rates, inflation, longevity of your life, unexpected health issues etc. Try to put a probability on running out of money and get it down to a level you are comfortable with.

    2) Invest your retirement portfolio in a mix of assets that match the risk exposures of your retirement. For example if you feel like inflation may be a threat to your purchasing power then invest your assets in vehicles that provide a high degree of inflation protection.

    my 0.02

  11. I agree it’s natural to worry unless you have a huge huge nest of eggs:-) And again, have discipline in spending, and have a plan B are necessary. Also please do factor in spending on parents as they grow old!

Comments are closed.