17th October 2017
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June 11th, 2017 Cat: Bisnis Online

When you’re planning for your retirement, not long from now, it is easy to over-plan, to shortchange the present, driven by fear of the future. Of course the period of time that we remain nonworking, supported only by our assets appears to loom long and threatening, and often the panic that this inspires is well exploited by investing advisors who delight in selling financial advice to sell as much commission-earning retirement investments as possible, whether it would be the best thing for you or not. Anyone who has done even a little basic reading-up about retirement savings, would easily have heard of something called the 4% spend-down rate. This is the part of your nest egg, your capital, that they believe you could safely deplete each year without really getting yourself into any danger. What this means is, that if you have $1 million put by for your retirement, that you could safely spend 4% or $40,000 out of that each year, and add on a little for inflation too.

The way this goes wrong, is in how you keep planning your retirement years in exactly the way you plan your productive family-raising years. Once you’re retired, and your children have mostly moved out and are on their own, would you really need as much each year as you did in your years of vigour? What people would actually need to do is not spend in the same way each year of their retirement. People as soon as they’re retired, are still relatively young, and really could use a little bit extra money. They could start off by drawing about 6% of their nest eggs each year in the initial years. And over the following 20 years, that could come down by half, which is what people naturally like to do anyway. If you calculated inflation and spending in the traditional 4% way, you would have to reckon that a couple with about $1 million as retirement investments on their retirement day, figuring 3% in inflation each year, need more than $100,000 a year when they turned 80. What kind of 80-year-old couple ever needs that kind of money? But listening to traditional advice, they would plan for this kind of unrealistic need, and severely restrict their spending and the years they could enjoy life the most, and be generally miserable.

There are plenty of other retirement investment rules that are just begging to be bent or broken. Another one is that 75% replacement rule for retirement investments. They say that whatever you make on the last year that you work before retirement, you’ll need to make sure you have at least 75% of that right now, for each year that you will be retired. Here again is a perfect way by which the investment planners would have you value your money better than your youth. All of this ill thought-out advice comes from the whole concept of online retirement investments calculators. There are a few good ones out there, but the majority of them are just best at giving you a serious-looking tool that basically tells you “throw away what you have now, because you are better safe than sorry”. And you need a software-wielding expert to tell you that?

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