Example 1: Too worried
You’ve done a good job saving on a consistent basis over the years and you take pride in increasing your nest egg. You have paid off your mortgage and have no outstanding debt. You consistently monitor the status of your retirement accounts, and when there is market turbulence, you take quick corrective action, such as cutting down on spending. The idea of starting to draw down on your assets frightens you, and you are constantly thinking that that those assets will be depleted during your retirement.
You are too worried, and you are not alone. According to a survey1 of the Center for Retirement Research (CRR) published in February 2017, approximately 24% of American households believe they are at risk of not being prepared for retirement when, in fact, their current savings and retirement posture suggest that they are well prepared. This means that about one-quarter of those preparing for retirement are at risk of being “oversavers” and living below their means.
That is not always a bad thing, but Robert Fishbein, a vice president and corporate counsel for Prudential, says it can be a problem when you are not living the lifestyle you want and can afford. A frequent speaker and author on retirement planning strategies, Fishbein explains, “You could be forgoing travel or other nice plans, or worse, not enjoying basic living comforts or appropriate medical care.” In this case, the “oversaver” may need help moving from an accumulation mindset to a prudent spending mode.
Example 2: Not worried enough
You think about retirement, but not regularly and methodically. To you, retirement is a distant concern, not a priority, or too frightening to truly consider. You forgo years of savings, thinking you can always invest more aggressively to catch up. You consider current spending needs – a new car, a bigger home, or new furniture – a greater priority. When you go online and check on your estimated retirement assets, you see how far behind you are from your accumulation goal, but take no action to change your savings behavior.
You are not worried enough, and you are not alone either. According to the same CRR survey, 19% of American households believe they are well prepared for retirement when, in fact, their current savings and retirement posture suggest that they are not.
“The person who is not worried about retirement ultimately loses the ability to control his future,” Fishbein notes. “By saving and planning into retirement properly, you can control when you stop working. By failing to do so, your only choice is to keep working or live poorly in retirement.” The problem with that is that the choice to continue working may not always be your decision. The retirement plan of “working until I die” is not an adequate substitute for accumulating a retirement nest egg and planning for your retirement years.