Do you worry about running out of money during retirement? Many Americans do and new research finds valid reasons behind your concern. On today’s show, I provide insight from a new study conducted by Duke behavioral scientists published in the Wall Street Journal called “How Much Money Will You Really Spend in Retirement? Probably a lot More Than You Think.”
In the study, the most common response given by the pre-retirees is that they believe they will need 70% of their pre-retirement income during their retirement. This rule of thumb is what I was raised with, and it’s still ingrained in the mind of many Americans. The research found that you will need a lot more money than what most retirees plan on spending during their retirement. The study finds that you need more than 70% of your pre-retirement income, and in fact, you’ll need much more than what you’re earning now. According to the behavioral finance experts, one of the top problems is that you’ll have more time to spend money during the day. In the past, you used to sit at your desk and work, but now you have free time to kill when you’re retired. With this free time, money usually gets spent.
Most financial advisors will do a simple calculation to tell you what you should save for retirement. Sometimes, they rely on you to tell them how much you’ll spend or for they ask to prepare a budget. The conversation can sometimes be muddled and confusing, maybe purposefully so. The advisor could want to be seen as an expert to prove how much you’ll need them. This approach causes problems for a retiree’s ability to judge their spending and rely on common rules of thumb.
No wonder why so many who are planning for retirement have anxiety about retiring and running out of money. They might not understand their plan. The key is to uncover what you will need in those retired years as opposed to what you think you need. A good financial advisor will help walk you through the steps to get a more accurate reading of the life you want to leave going into retirement. You should be able to spend and enjoy your hard-earned money, so find out why it’s important to make sure you have a good plan on today’s show.