Tuesday, August 15, 2006

The "Party Hardy" Trap of Early Retirement

A well-publicized article about lesser spending in later years of retirement and the potential for reducing the nest egg needed for retirement as a result has been overstated, according to Jonathan Clements of the Wall Street Journal. The 2005 Journal of Financial Planning article by Ty Bernicke suggests that spending on retirement is not as great as claimed because of lesser spending in the post-75 years when retirees generally have poorer health and are unable to travel and spend as much as before. While agreeing that there may be a degree of truth to Bernicke's claims, Clements points out that reduced income levels and added medical costs also contribute to reduced discretionary spending and that Mr. Bernicke overly relied on US Census income quintiles without adjusting for the fact that the quintiles reflected differing income levels at different ages. A sobering final fact: for retirees over 75, the average wealth other than homeownership is under $20,000.

Saving for retirement is very tricky--personal desires, needs of children (if applicable) and significant tax payments somewhat limit the amount that most people save and it is not automatic that those in their 50s will be able to catch up. Expect reverse mortgages, part-time employment by people in their 60s and 70s and other means to become increasingly popular as many Americans find retirement more expensive and less "playful" than they expected.

1 Comments:

Blogger The Scribe said...

I agree, retirement will be no party for me and my fellow baby boomers....

http://www.thegeminiweb.com/babyboomer/wp-admin/index.php

9:30 PM  

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