Are you saving the right amount for retirement? 1

The wisdom of retirement gurus is that you need to have enough savings or pensions to replace 70% of your pre-retirement income when you retired. There is research now that found that the true cost of retirement for many retirees was about 20% less in savings than the common assumptions for retirement savings would indicate. For years, the rule of thumb has been to replace 70 to 80% of your working wages to live comfortably in retirement.

However, new research is finding that some of us can live quite comfortably on a little more than half of our working income and inflation has a much smaller effect on retiree spending.

One of the difficulties with figuring out how much to save for retirement is wading through the different kinds of advice. So much of what you read is a one-size-fits-all formula with so many unknowns and a lot that is not relevant to YOU.

The first tip, planning can be hard because you must make a lot of guesses to even be close to knowing how much you need: If you retire at the age of 65, how long will you live? What will your medical or long-term care expenses be? Will you live through periods of runaway inflation or another stock market crash? Will your adult children fall on hard times and need your financial help?

There must be some rule somewhere that makes sense of the following reality. Those that don’t spend money, are often the ones who save money, which makes sense. Here is the ironic part, the biggest savers are typically the ones who need the least amount of money in retirement. Why you may ask, it is because they’ve become accustomed to living well below their means.

Humans for the most part are creatures of habit, so if you are a saver, as a force of habit, you have spent much of your life earning a paycheck and saving. Over time those savings add up and you feel good about those savings. Thinking about spending those savings you have worked so hard to accumulate is a hard behavioural shift that many will not make. I still save even in my retirement and I was not a life longer saver, I came to the habit late in life, but I still find it hard to spend money without a good reason.

Another reason people may save more than they need is fear. Walk down any city street and you will see people who are homeless, many through no fault of their own. No one wants to end up penniless, which for many means homeless. Fear of running out of money means the more you save.

Tip two, sit down with your financial advisor and run the numbers for your situation. If you run the numbers, you may discover that you’ll likely need less in retirement than originally thought. That does not mean stop saving. However, make sure that the sacrifices you are making to save for retirement don’t come at the expense of enjoying your present life.