Saving Too Much For Retirement? Is It Really Possible?

Conventional wisdom tells us it’s impossible to be saving too much for retirement, but is this really true? We’ve been hearing about the need to save more for retirement, and for good reason. Ask many of the Baby Boomers who are getting ready to retire and you’ll find that many of them have come to the realization that they don’t have as much saved up as they had hoped, or that they may need to even put off retirement for a few years.

So, is it possible to save too much for retirement? Of course it is, but it’s far from the norm. The real issue comes from the sacrifices you need to make today in order to plan and save for a retirement that may be decades away. There is a balance in life.

If you find that you are already contributing the maximum amount to your 401k.

You are contributing to a 403b, if you are able.

You are contributing to your Roth IRA.

You know exactly how much of your paycheck you should save.

You have figured out exactly how much you need to have saved for retirment.

and you are well on your way to becoming a millionaire, than it might be time to rethink that balance.

If you’re busy cramming every last penny you can into your retirement account and don’t have the cash to do some of the things you want to in life today, you’re saving too much.

You have to remember that retirement is just one phase of your life and while it requires a nest egg and a source of income to live comfortably, you can’t put everything else in life on hold. We need to consider the uncertainties that come with retirement—health, longevity, economic conditions, and taxes—which will play a huge role in determining whether or not we’ve saved up enough. You can make some assumptions when planning for these things, but essentially we’re working with a lot of broad assumptions.

Retirement Sign

Striking a Balance

To make sure you’re not saving too much or too little for retirement you need to strike a balance. Saving a portion of each paycheck, investing the money wisely, and thinking about how to spend that money in retirement are all important. At the same time, you’ll want to look at the things you want to accomplish before you retire. You’re only young once and what good does putting off all of your goals until your golden years do if you end up with poor health and find yourself unable to even do the things you worked so hard to save up for?

This doesn’t mean you should raid your savings account and jet off you Europe or buy an expensive sports car tomorrow, but it is time to sit down and think about the things you want in life. Think about what your retirement will look like, how much money it will take, and how you plan on getting there. Then look at some of the things you enjoy and would like to do before retirement and set aside some money and goals to make sure you can accomplish them without having to put everything off until retirement.

Taking Care of Other Financial Needs First

Finally, prioritize your financial obligations. If you’re like most people, you have other financial items to attend to such as saving for college, paying off credit card debt, building an emergency fund, and so on. If you’re dutifully putting 10 percent of your paycheck into a 401(k) but have $10,000 in high-interest credit card debt and virtually no emergency savings, it’s time to step back and look at what’s important.

Saving 10 percent or more of your pay for retirement is great, but if you’re wasting thousands of dollars a year on finance charges because of lingering debt or don’t have enough money in the bank to last you a few months during a financial emergency you’re just setting yourself up for failure. You don’t have to ditch the retirement savings entirely, but consider scaling back and using some of the money to pay off that debt and begin building a safety net. In a situation like this you can be saving too much for retirement because you’re costing yourself more money than you’re gaining due to interest and setting yourself up for a possible disaster if a financial emergency does arise.

For more on this topic be sure to check out the article I wrote Are You Saving Too Much For Retirement.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

9 comments
Rohit NACS
Rohit NACS

This is the wonderful blog ever. It makes us updated by providing different ways to secure our life after retirement. It provides financial planning techniques that can makes us independent and happy after retirement because everybody knows about the life after retirement when one has no money to spend themselves.

Fair Field Insurance
Fair Field Insurance

I agree with NewtonMa that what is happening is actually the opposite - people not saving up or preparing enough for their retirement years, when they could no longer earn income. Its also scary to think if you don't even have a life insurance especially if your family is still dependent on your salary or you still have substantial debt obligations like house mortgage, etc. 


However, I do agree though that there should be a balance between the present and the future. It's really just a matter of being financially aware and planning for everything the right way. 

Newton MA Insurance
Newton MA Insurance

I think its the other way around. Too many people are not thinking enough or planning about their future. They spend and spend now and before they knew it, retirement is here. Even the idea of getting an insurance coverage does not cross their mind unless someone brings it up or an unfortunate incident jolts them out of their comfort zone. It s a pity sometimes. Its definitely way better to save too much for retirement than not saving at all or not saving enough. Which one would you rather go for? 

Jane Fox
Jane Fox

I agree about the finding the balance in life. I don't believe in starving yourself today so you can eat tomorrow, so to speak. But in real life and what's happening for most people, its really that people don't have enough or don't have at all any retirement fund. Aside from saving up for the retirement nest egg, one should also look for ways to diversify one's investment portfolio, not to mention having enough health care plan.

herberthbates
herberthbates

There was a time when a million dollar nest egg would signify abundant wealth. Things are quite different now. I have a feeling that if you can get off all your debt by, say, 50, limit your spending, and above all have great health, a million dollar in your retirement fund when you retire might suffice. Caveat: The economy is not hit by bouts of hyper-inflation or political instability

getrichwithme1
getrichwithme1

Here in the UK everyone has a maximum lifetime allowance that theyre allowed to build up in a pension scheme - currently £1.5m ($2.25m).

Why would anyone want more than that in their pension ?

Best thing is to spread your assets around.

thefrugaltoad
thefrugaltoad

I think you've made a great point Jeremy about striking a balance when it comes to not only retirement planning but life in general. What good is it if you sacrifice Family over a job just because the income provides material things? Best decision I ever made was to leave a corporate job for teaching. The money is not good but I can honestly say that I am doing important work at the end of each day!

Adam Reggie
Adam Reggie

What eat into retirement is health care.Also start early putting cash away so won't in panic mode in your 50's.Also be readuy change out of investment when market is taking a down turn.