Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 218

Retirement planning improved by grey hairs

Most planning advice regarding saving for or the enjoyment of retirement is given by people who are not retired. While the advice may be well meaning, it could inadvertently suffer from a lack of empathy with the realities of retirement.

In addition, the experience and expectations of current and previous retirees may differ significantly from that of the vast numbers of baby boomers that will increasingly dominate the ranks of the retirees over the next decade. As a result, retirement advice based on researching earlier generations may not be as relevant as expected.

A recent article in The New York Times, titled "Three Things I Should Have Said About Retirement Planning" is a confession. Paul B. Brown co-authored two books on saving for retirement while he was in his 30s and 40s. He is now aged over 60 and his typical advice suffered some inadequacies, now made apparent by his own life experience.

Retirement planning meets reality

He provides three examples where his generic approach to retirement planning failed to accord with the reality he experienced.

1. Working longer

The first example concerns a typical response to inadequate retirement savings. Rather than the suggestion to a client that they need to save more and spend less, the more palatable advice is often to suggest they work longer. Together with the fact that we are usually living longer, working longer doesn’t appear an unreasonable proposition.

The obvious argument against this for those in labour-intensive jobs is they may be physically incapable of working longer. But Brown’s experience is consistent with that of a number of our clients:

“… I now realize … just how hard it is to keep working as you age. My job doesn’t require much more than typing all day long, and I find myself getting fairly tired by day’s end. I can’t imagine I am going to have more energy a decade from now.”

So, unless you remain extremely passionate about your work, working longer to rectify an inadequate savings problem isn’t necessarily the easy option it is often held out to be. If our clients are to work beyond a desired retirement age, we prefer it to be by choice, rather than driven by financial necessity.

2. Life is not predictable

Brown’s second example concerns an assumption that ‘life moves in straight lines’, for example, once you begin saving, you keep saving. His earlier advice assumed that when children moved out of home and were financially self-sufficient, the money previously directed to children would then all be available for retirement savings.

His reality was that for some considerable time those ‘available’ funds went to home repair that had been deferred during the high cost years of raising and educating children. His retirement planning advice had not allowed for the significant and ongoing cost of what we call ‘capital maintenance’.

In our view, Brown’s previous retirement planning advice failed to sufficiently drill down into the financial expectations of his clients (or book purchasers). We ask our pre-retiree clients, regardless of their current age, to not only tell us how much they are spending now but also what they would like to spend in retirement. We go through a list of likely household expenditures line by line and over time, on the understanding that the pattern of spending may change.

For example, more money may be devoted to travel, sports and entertainment in the early years of retirement. Spending may reduce in later years as mobility and, perhaps, enthusiasm for such activities decreases, but expenditure on medical costs and support for children/grandchildren may rise.

One area of spending that receives special focus is what we call capital maintenance. This usually refers to the cost of updating the family residence and replacing motor vehicles. These generally imply lumpy, irregular outflows that are often overlooked when determining expected ongoing expenditure.

No client has ever told us that they want to run their existing motor vehicles into the ground or let their house fall down around their ears in retirement. The general expectation is that these capital items will be refurbished or replaced so that their pre-retirement standard is at least maintained.

3. Incurrence of large, one-off expenses

This is supported by the third example, where Brown’s personal experience included a large one-off expense for a combined major trip and wedding that had not been contemplated and seriously affected the family’s financial position. It underlines the need to budget for future desired ongoing holidays and other major, highly likely, expenses (e.g. weddings, support for adult children), so that should a large unplanned once-off expense occur it does not cause an entire financial plan to unravel.

‘Rules of thumb’ solutions may not be helpful

Brown’s solution to the conflict between his earlier advice and actual experience leads him to recommend: “And no matter how much money you think you are going to need, save another 15%, just in case”.

We believe this advice will fail to handle reality adequately. There is no substitute for:

  • A detailed examination of the financial implications of lifestyle expectations, and
  • A regular review (at least annually) of the resulting lifelong cash flows, given changes will inevitably occur.

The actual experience of a wealthy accountant, who sought a second opinion from us regarding the veracity of his financial planning, is salutary. He planned to retire within two years and, among other things, estimated a desired retirement lifestyle of $120,000 per annum.

A more thorough analysis of his expected spending and incorporation of overlooked allowances for capital maintenance (of a principal residence, holiday house, investment property and two luxury cars) suggested that $200,000 per annum was more realistic. An additional 67% retirement capital required a dramatic change in lifestyle expectations. In the case of this client, adding another 15% would have been wholly inadequate.

The future is unpredictable and an opinion on a desired future lifestyle many years ahead may change by the time the date arrives. But not making some reasonable guesses makes it almost certain that unplanned adjustments, most likely significant, will be needed at some stage.

 

John Leske is a Principal of Wealth Foundations. This article is general advice only as it does not take into account the objectives, financial situation or needs of any particular person.


 

Leave a Comment:

RELATED ARTICLES

More people want to delay retirement and continue working

The quirks of retirement planning with an age gap

The new retirement challenges facing Australians

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.