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How Much You Think You Need for Retirement vs. How Much You Really Need – Presented by Mark K. Lund, Utah Financial Advisor

Financial Advisor UtahWhen it comes to packing for a trip, there is a whole spectrum of people. At one end are the minimalists who somehow fit everything they need for a two-week vacation into a small carry-on or backpack. At the other extreme are the overpackers. These are people who need two or even three full-size suitcases full of stuff.

It’s no fun having to lug around extra luggage on your vacation. Not to mention the wait at the baggage carousel or the added stress when your checked luggage gets lost. On top of this, you feel pretty silly when you get back home and unpack all the things you ultimately didn’t need to bring.

So why are we tempted to bring along too much? Psychologists say that overpacking is an emotional reaction to going someplace new. When a destination is unfamiliar, we want to bring more of the familiar things that make us comfortable.1

The reasons to bring along as much as you can are endless. What if it turns cold and rainy? What if the hotel doesn’t have a hair dryer? What if I don’t like any of the food?

On the other hand, when traveling to a familiar destination, you can confidently pack just the essentials.

Retirement is like a destination you’ve never been to before. So, it’s natural that the emotions that cause you to want to overpack can also skew your estimate of how much money you will need in your post-work years.

Bloomberg asked investors from around the globe how much they would need to retire comfortably. The majority of respondents in North America estimated they would need to amass between $3 million and $5 million.2

Ben Carlson, a financial analyst and blogger, has two interesting observations on this study.

The first is how unrealistic those numbers are for average savers. Only 4.4% of U.S. households have $3 million or more in assets. The median net worth in America is just over $121,000.

Carlson writes, “There seems to be a disconnect between the number of people who think they will be millionaires and the actual number of people who can pull it off.”

His second observation is that people tend to overestimate how much money they will need in retirement, anyway. Carlson cites a report from EBRI that studied how much of their nest egg Americans tend to spend in their first 20 years of retirement. It found that not only did most people spend less than you’d think, but that those with more money spent a smaller percentage of their savings. For example, retirees with half a million or more before retirement spent down less than 12% of their money.

Uncertainty about what lies ahead in retirement can lead you to financially “overpack.” Or at least vastly overestimate what you will need. If it’s a number you have no realistic chance of hitting, it can discourage you from trying at all.

On the other hand, if you talk with your trusted financial advisor, he or she can help you create a flexible plan that takes into account your future needs and your current ability to save. Having a familiar and tangible plan can help you feel confident that a fully funded retirement is within reach.

If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.

Regards,
Mark Lund
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020

Sources:
1. http://go.pardot.com/e/91522/-psychology-over-under-packing/93j2x2/2011455127?h=tc1J67KOoMEFKHGcu_meawQ0BDbFX4gJhB9tGzIqYZg
2. http://go.pardot.com/e/91522/-enough-to-retire-comfortably-/93j2x5/2011455127?h=tc1J67KOoMEFKHGcu_meawQ0BDbFX4gJhB9tGzIqYZg

Disclosure:
This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is a Financial Advisor in Utah. He is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment management and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Effective Investor Newsletter. Cities served in Utah are: Salt Lake City, Salt Lake County, Utah County, Park City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, American Fork City. The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.

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