Over the weekend, I skimmed past a headline that read: You Might Be Saving Too Much for Retirement.
Cue screeching tires coming to a halt. Scratching of abruptly stopped records.
I did a digital double-take and quickly scrolled back up on the Twitter feed I was reading on my phone.
What kind of nonsense is this? I thought. I clicked on the link, and I was disappointed to find the article was pretty much a bunch of nonsense.
It was written by an individual already well into retirement today, who was into their 70s, and who took advantage of current Social Security rules that provide you maximum benefits if you wait til 70 to start withdrawing them. This individual had played by the book, financially speaking, and was a diligent saver during their working years and paid off the mortgage to the home they planned to live out their days in before they hit retirement.
They had an ample nest egg and no debt. Their Social Security all but covered their necessary expenses, leaving all that money they’d saved up available for discretionary spending. They concluded they had saved too much while they were working, and regretted not “living it up” a little more while they were young.
Today’s Retirement Won’t Look Like Tomorrow’s
There was nothing particularly wrong about the article — beyond the fact that it was completely irrelevant to the age group who needs to be thinking about retirement savings more than any other. That’d be Gen Y, or those in their 20s and 30s, because they’re in the prime position to take advantage of compound interest and save a whole butt-load as soon as they can (that’s the scientific term, you know).
The biggest reason that it’s irrelevant is because of the heavy emphasis on the fact that Social Security was footing most of the necessary bills. I do believe some form of government benefit will exist for retirees by the time we hit retirement age, but I don’t think it will look anything like it does today. I’m not factoring it into my retirement plan; if something’s there, it’s a bonus.
It’s also irrelevant to Millennials because the vision of retirement is constantly shifting. Our retirement won’t look like the life of a retiree today.
But still — the idea that this person said they should have lived it up more while they were young stuck with me. It left me feeling a little uneasy.
How Much Is Too Much?
That is, of course, because I’m a bit of a money hoarder. I prefer saving to spending, and not because I’m cheap (at least, not most of the time).
The lifestyle I lead simply doesn’t cost a lot of money. When I do spend, it’s usually on big stuff — namely, travel, both domestic and international.
So instead of spending, I save. A lot. I don’t have to worry about debt or getting into financial trouble because I spend too much. But interestingly, saving money — and investing the majority of it for future needs like my ideal retirement — has come with its own set of worries.
The one about not enjoying life today because I’m too busy worried about tomorrow is prime among them. That’s why the article stuck with me, perhaps a little longer than it should have.
How can you strike a balance? How much is too much saving and too little living?
It scares me how often I hear people talk about what they regret not doing. I wonder if, by striving to save as much as I can (without landing myself on Extreme Cheapskates), I’m depriving myself of a critical experience or opportunity I won’t get in the future.
On the other hand, part of me thinks that’s “fear of missing out” talking. Those thoughts are fear-based. They’re not rational.
Am I saving too much for retirement? No! It has nothing to do with how much I’m saving and everything to do with the question, am I enjoying life right now or am I feeling deprived because I prioritize saving over spending?
My answer to that question: I love my life right now. I don’t feel like I’m deprived or missing out on anything critical. I don’t want for much and I’ve learned that I’m happiest when my money goes toward things I highly value. Again, for me, that’s travel. Food is a close second. (Seriously!) If someone asks what I want, I tell them, “I want to go on a trip.”
And I do. So I’m happy with my life today. And I’m really thrilled that my savings rate allows me to grow my wealth to enjoy life just as much tomorrow, too.
No, You’re Probably Not Saving Too Much for Retirement
I think anyone who’s working hard to save for retirement wouldn’t mind their future selves beaming back through time to tell them, “you know what? Everything works out fine. Stop worrying so much about money and enjoy it a little more. You can spend a little more and still have plenty in retirement.”
But that’s not gonna happen. You just don’t know — good or bad — what the future looks like.
We want someone, an authority, to tell us, “yes, you’re saving too much! Look at these models that show you’re in better financial shape than you thought you would be.”
But they don’t know any better than we do what tomorrow brings.
We want permission to get a little lax with saving because we’re doing so much. And it’s exhausting. It’s a long hard slog to reach a big financial goal, like adequate savings for retirement — or enough wealth for early retirement. Having someone say we’re saving too much would be a bit of a relief, because it might mean getting to ease up a bit.
You’re probably only saving too much for retirement if:
- You’re depriving yourself of any pleasure or happiness today in order to save a buck for tomorrow.
- You agonize over spending purchases.
- You go out of your way to save a dollar; you spend two hours clipping coupons to save $5 (that time could be better spent earning more money!).
- You’re miserable or missing out on opportunities and experiences on a weekly or monthly basis, because you turn them down in order to save money instead.
If, on the other hand, you…
- balance your saving with spending on things and experiences you value above anything else;
- enjoy hobbies or activities that are inherently inexpensive;
- don’t find yourself wanting for anything, and therefore don’t feel the need to spend on luxuries;
…your savings rate is probably really healthy and doing great things for you on the wealth-building front. So keep it up — and don’t be fooled into thinking you’re saving too much.
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My mother is close to retirement–she’ll be 64 this month. She’s never made a big salary in life so she’s not going to get a lot in SS but she has a small retirement investment fund and a small pension from working for a car company. When I told her what her estimated retirement income could be, she acted surprised, realizing that the total was more than makes now. Since she’ll be living rent free with family in retirement and family is covering the costs of her Part B healthcare plan and her cell phone, she’ll have even fewer expenses than she has now. It’s for retirees now who did have a separate retirement savings account that are fine and might have more money than they need, especially if they have minimal liabilities in retirement.
However, for younger folks like me, social security seems more grim and I know the importance of retirement saving. I don’t have a pension or anything similar to rely on. What I save now is likely all I’ll have and so I need to make it work.
We do need to make sure we take care of ourselves and think of government benefits as bonuses, not something to rely on. Again, I think people our age will get SOMETHING. Just no telling what that looks like!
I like your approach. I think it’s better to think of Social Security in our retirement years as a bonus simply because we really don’t know what will be available to us by the time we get there. Even my parents who are 63 are nervous about getting the full benefit of waiting till 70.
It’ll definitely be a bonus to me. I hate that your parents feel nervous about waiting, but I understand their concerns. It’s definitely unsustainable as is, so I imagine some changes will be made .. just a matter of when and how that affects the benefits people receive.
I’m with you. I’m not counting on Social Security either but will welcome it with open arms if in fact I get some.
The way that I see it is that if you’re not enjoying your life and saving like crazy but still plan on working until you are 65 years old, I think you should really take it down a notch and live a little. But if you’re not enjoying your life right now because you want to reach early retirement so you can enjoy your life more in your 40s and 50s, then you probably should also take it down a notch and live a little. lol.
Haha, love that. If you’re making yourself miserable, it’s definitely time for a different plan of attack.
I really don’t count on government benefits in our FI/Retirement equation. Even if the social programs will still be in force by the time we’re eligible I hope that I won’t need it like so many who do fully rely on SS today.
Same here, Kassandra. I don’t count on it when it comes to retirement planning. I think some sort of benefit will be there, but it’ll just be a bonus to us if we get anything in addition to what we’ve saved.
GREAT article. You can NEVER save too much. However, don’t make yourself unhappy doing that should be the motto. These folks who are significantly into their retirement and have found themselves with lots of excess funds and well now they don’t have the health to live it up how they once could have.. Well I would kinds of have some regrets too….
It does highlight emphasis on being and staying healthy as well. I am an ultra runner and triathlete and know many folks who are well into their 70s whom which I regret to say I have trouble keeping up with and they put me to shame. I can only hope sometime I am their age with their health stats!!!
As for folks that really do have a significant portion of wealth left at the end of their life that can be GREAT for future generations. Perhaps Draft a will / doctrine of trust within the family to be used at a living TRUST for the next generation and generation after that… Perhaps a few generations down the road the younger family members would greatly benefit from having a trust worth 0.5 to 1 million directed in their name at a young age… This money not to be spent but serve as insurance / incentive to say.. “hey it’s okay to do some of these things when I’m younger and living life, I have this trust for when I get older.”
I think most people we realize how much of a benefit that was and lack of burden over their head from a financial perspective that in their later years when they really realize how that contributed to shaping their life and allowing them to do more of what they wanted to do… MOST all would strive to pay more into that trust and to leave an even bigger trust find to their kids and the next generation… For most of us true wealth building will take afew generations with the former leaving a lump of money for the next to get started and continuing on that tradition…
One way to start this is by Saving too much to begin with!!!
I wish I could save more in my view 52% is just not enough.. However, the other 48% is spend on more activities and experiences than I can recall…
Sounds like we’re in similar situations, Tim. We save/invest about half our income and I would love to do more, but I also want to enjoy life today 🙂 I like your idea making sure you have an estate plan in place. That’s crucial for anyone with any amount of assets! And taking care of yourself health wise is another great point. Investing in yourself is just as important as investing in your retirement accounts!
I don’t think it’s really possible to over save so long as you are also enjoying life in the present. I’ve already saved enough for retirement past age 65, so now I’m saving for the earlier years. I don’t know when I’ll end up retiring, but having more money saved is never a bad thing. I can always donate my excess if I get old and have more money than I can spend. Or retire early.
probably saved too much… Or I didn’t do it right… RMD is going to kill me with taxes in 7 years … Waited too long before doing a conversion.. And now it’s too late.. Will be force to take the money I won’t need
Jim,
I’m interested in hearing how the RMD will effect you and what you would have done differently. I’m have had these thoughts and since I am 40 years from the RMD rules… It just isn’t on my radar but I’d like to plan for it…
My brief understanding is that I want to funnel as much as possible into my Roth IRA to avoid the RMD… It is my understanding that is the only retirement / investment vehicle that is exempt from the RMD rules. Is that correct?
Thanks,
Tim
All good options for too much money. Or you could live it up a little more than you thought you’d be able to! 😉
I am not counting on social security at all. I would love it if it was there.
I’m not either, as far as planning for retirement and estimating how much I’ll need. I feel Michael Kitces knows what he’s talking about, though, so I’m choosing to believe there will be SOMETHING there for people our age. Just won’t look the same. It’ll be a nice bonus to what we save on our own, but just that — a bonus.
Interesting article. Can you comment on the advantages and disadvantages of investing in either a 401k or a roth IRA or a traditional IRA?
Thanks.