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Originally Posted by Slava
It's probably the opposite though. People who don't save and have no plan for retirement probably don't think they need my services, so I see less of them than I do people who want to plan and have money saved. I get lots of people retired though, and they weren't in a good position for that before we put things together. But anyway, this isn't about a sales pitch for me and my services.
It's hard to come to a percentage on how many over-save though because I haven't done a good analysis of that. I think that there can be a question between how much someone has saved for retirement and how much of that can be safely used as income each year. But look at it from this angle. If you are retiring today, say at 65, we have to plan for you to live until 95. So you need 30 years of income. To keep it simple, let's say you have no company pension and some CPP/OAS (I used $18k/yr which puts you at the higher end of CPP) and you want $50k/year in after-tax dollars. I won't make allotments for reduction in spending as you age, and we won't get into what kind of return you can get or things like that. You need just under $1.5m to make that a reality.
To be entirely clear, no one should rely on that back of the envelope calculation and try to retire with it, as clearly YMMV. But that's a raw, no inflation, taxes totally estimated figure. So sure, you could withdraw money from a house, or have the cash in the bank or wherever, but over that 30 years you need that kind of cash coming in to sustain your lifestyle.
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Ok, I know you said not to talk about tax rates or returns, but the person in your example needs $32k after tax per year for 30 years, or a total lifetime spend of $960k. I really don't think that person needs $1.5 MM, unless one of the unstated goals is to leave an estate of over $1MM.
For them to be out of money at age 95, you need to assume 33% taxes (which is greater than the marginal rate for that income level) and zero percent returns. I agree with those assumptions nobody is over saving.
A real return of 3% is reasonable. If the same retiree took 3% of their 1.5MM, that would be $45k pretax, or right around 32k aftertax. Leaving a $1.5MM estate. Imo being able to leave a 7 figure estate isn't a requirement to retire.