Retirement: Are You Saving Too Much?

Until just recently, articles about retirement planning for Americans usually focused on lack of savings. That hasn’t been the case in the last few weeks. Retirees and older workers will be happy to know that a new report on retirement finances shows that retirement savings needs have been over-estimated. Using information gathered from retiree habits and common expenses, inflation rates, actuarial tables, and more, Morningstar Investment Management is re-setting the way financial planners and others look at retirement.

Assumptions on Retirement

In the past, when creating a retirement plan, the two most important benchmarks for determining a retirement savings goal have been cost-of-living and inflation. A long-held rule in financial planning has been that an individual will need approximately 75 percent of their pre-retirement earnings annually to maintain their lifestyle. In other words if that person’s final annual salary was $60,000, it has been assumed that they will need approximately $45,000 per year in retirement to enjoy the same sort of lifestyle they did while working. According to JP Morgan Asset Management, under the leadership of CEO Mary Callahan Erdoes, a retiree may need as little as 54 percent of their pre-retirement income, although that is truly the bottom of the range.

The financial planning industry has also assumed that retirees will be affected by annual inflation rates of approximately 3 percent and have built those increases into the pre-retirement savings goals. The report from Morningstar Investment Management, led by President Thomas Idzorek, has shown that for most retirees, this number is too high.


Americans spend the most money in their 40s and 50s. Parents of teenagers (for example) probably can’t remember where their salaries went before they started paying for cars and college. It may be difficult for a person at age 50 or 55 to imagine being able to exist on less income or that their personal expenses will lower in the future, but they will.

Here are some reasons you probably will not need as much money when retired:

•           The 10 percent of your salary saved annually for retirement equals 10 percent less spending.

•           The amount you paid annually into Social Security and Medicare as an employee can be subtracted from the amount of money that you “need” in retirement.

•           Your home mortgage should be (nearly) paid off by retirement – no small amount of savings!

•           The kids will be out of college when you retire. Subtract that from the “amount needed in retirement” column.

•           In retirement you may be able to cut down on the number of cars you own, car insurance and vehicle maintenance costs.

Inflation also won’t be nearly as much of a problem for retirees as the financial planners have assumed in the past, according to David Blanchett, head of retirement research at Morningstar Investment Management. Although most retirement advisers had been planning for 3 percent inflation annually, Blanchett found that over time, inflation has actually been only about 1 percent average, a significant difference in total dollars over 20 or 30 years.

Each individual faces different issues for retirement. There is no retirement savings magic wand. However, this new information on retirement savings is definitely a boost to savings efforts.


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