Why You Should Overestimate Your Retirement Needs

It’s better to have money left over than to spend down your savings too soon.

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Some people think it’s possible to save too much for retirement, but it is unlikely that you are oversaving. Perhaps you should strive to save even more than conventional wisdom dictates. With all the unknown factors facing retirees, it might not be a bad idea to overestimate your retirement needs.

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The benefit of overestimating your retirement requirements. There is nothing wrong with taking an overly conservative approach to retirement investing. To start with, it is incredibly difficult to save too much for retirement. If you have too much money, then you have a variety of ways you can use those funds to increase your standard of living, give it to charities or your favorite causes, or leave it to your heirs. On the flip side, not having enough money for retirement is a much worse alternative. Overestimating your retirement needs could pay off even more in the long run.

We can't predict the future. Let's imagine you are in the prime of your career and the unthinkable happens—you lose your job or are otherwise unable to work for an extended period of time. It's not a pretty thought, but one that is all too common in our current economy. If you have been investing aggressively for retirement, then a period of unemployment or underemployment may not derail your retirement dreams too much. But it might deal your retirement goals a substantial blow if your savings habits were minimal. My recommendation is to save aggressively while you can, because you don't know how long you will be able to do so.

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Investment returns aren’t stable. Investments in the stock market have, on average, returned close to 10 percent per year over the last 100 years. But the last decade had extreme levels of volatility and there is no guarantee the future will be any better or worse. Being extra conservative in your planning will increase your odds of meeting your minimum retirement needs and give you better odds of being able to retire comfortably.

The essentials will cost more. The next time you contemplate retirement, take a few minutes to speak with someone who is older than you and ask them how much the essentials cost 20 or 30 years ago. Then ask if they ever expected those items to cost what they do now, and how they would have prepared differently if they had that information 20 or 30 years ago. The answer you receive will probably be very enlightening. Accurately predicting future expenses is very difficult, and it’s better to have a buffer than not to have enough.

You may want to travel. Many people have retirement dreams that include travel and a life of semi-leisure. If you want a higher standard of living in retirement than you have now, then you definitely need to overestimate your retirement needs.

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What happens if you save too much? Saving too much won’t hurt you, but not having enough can make your life miserable. It’s much better to overestimate your retirement needs and possibly have money left over than to spend down your savings too soon.

Ryan Guina is a U.S. military veteran, writer, and professional in the corporate world. He blogs at Cash Money Life and The Military Wallet.