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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.


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