Scrambling the Nest Egg
Every worker saving for retirement faces the same fundamental question: Exactly how large should your nest egg be?
A new concept calls for people to save less and spend more in their first years of retirement.
Sound like a fantasy?
Some financial planners say it is, but the idea of “reality retirement planning” put forth by a certified financial planner in Wisconsin is gaining some traction.
Ty Bernicke of Bernicke & Associates in Eau Claire said that in reality, people spend less as they age, and he cites government reports to back up that contention.
He doesn’t dispute that Americans still need to save or that many people haven’t saved nearly enough to consider retirement.
What he said, though, is that some Americans may be saving too much because of mistaken assumptions about the size of the nest egg they’ll need. “On average, I believe that the financial industry is misleading people into believing they need far more than they actually need,” Bernicke said in a telephone interview from his office.
His assumptions for what he calls “reality retirement planning” are based on spending patterns reported by the U.S. Bureau of Labor Statistics. He presented his views in an article published earlier this year in the Journal of Financial Planning.
“I’m trying to have the public see that if they’re at that job that’s bringing them close to a heart attack,” they might be able to retire sooner and spend more money initially pursuing their dreams than they had imagined.
Traditional planning calls for retirees to draw as little as 3 percent to 5 percent out of their nest egg each year. Bernicke, though, allows for withdrawal rates above 8 percent in the early years of retirement, when retirees may want to travel or pursue hobbies.
