Can You Save “Too Much”?
While tooling around the inter-web this morning I came across this CNN Money headline:
“Think You’re Saving Too Much?”
Personally, I don’t think that a 38-year-old with a $59,000 income could possible save “too much” for retirement, even with a pension benefit. I’m not saying he should live the life of a pauper now in order to save for the future, but putting away 10% of one’s annual income is hardly overly aggressive.
Why?
Because inflation is on the rise.
Because health care costs are escalating a pace greater than inflation.
Because you never know when pension benefits or social security with be partially poached or just-plain eliminated.
Because at the end of the day, the only one responsible for your retirement income is you - not the government or your former employer. Nothing in live in guaranteed - and in this guy’s case - he’s 24 years from retirement, a lot of pension and social security legislation can change in a quarter of a century.
Besides, if you save “too much” for retirement, that may mean you can travel more, or buy that second ‘snowbird’ home, or start an endowment for a charitable organization. And for those with families, it can mean sending a grandchild to college without student loans or leaving an estate to heirs. Seems to me that the ‘downside’ of saving too much isn’t much of a downside at all.
Unless, of course, you die. Not much you can do about that, though.
If you have time, I recommend you check out the CNN Money post and the related comments - clearly retirement savings is a hot button topic - some of the commenters have some interesting things to say about the letter and the advice given by CNN’s expert.
Stumble it!
August 1st, 2008 at 12:16 pm
I think the wisest course is to find a reasonable balance between life today and in the future. It doesn’t make sense to be a miser and live in abject poverty depriving yourself and your family to horde money. It is equally bad to not save anything/go into debt to enjoy life now at the cost of your future.
At the minimum your lifestyle should make you happy now and also allows you to save enough to reasonably improve that lifestyle in the future. I would be conservative with the calculations to handle the uncertainties- will social security still be around? Will the market returns be horrible? We won’t know until it’s too late, so saving more than you think you will need is prudent.
It would be great if there was an easy fixed number like 20% that would work for everyone, but that ignores the complexity of real life. People’s situations are just too different for a one size fits all approach. That’s why having an individualized plan for your retirement is really important.
-Rick Francis
August 1st, 2008 at 4:32 pm
Call it whatever name you want to call it. The style is to live below your means. What does that mean?
To me, it means that if my favorite lender says that I can afford a house that is 2.5 times my annual income, use 1.25 times.
To me, it means that if my favorite lender says that I can afford a debt load of XX%, shave 10% or more off that number.
To me, it means that if my favorite lender says the I can afford to stretch my car payments over 6 years, cut that in half and still keep within the parameters for overall debt load. Nevertheless, have the amount I borrow for an automobile in the bank - even if I decide to finance.
To me, it means never charge what I can’t pay when the statement comes - not even for the best once in a lifetime investment opportunity, marriage opportunity, and so on.
To me, if “Country Club A” requires a $150,000 investment - if it stretches any of the debt parameters, I find a cheaper club or wait until I can foot the bill without debt or until my employer picks up the tab.
It is a lifestyle, but not miserly.
Fly first class if that fits the overall spending plan. It is comfortable. Enjoy 3 weeks in a row annual vacations, at a minimum. Four weeks in a row is better. Anything less, look for another job. Negotiate about every 5 years to stretch that to 6 weeks - even if two weeks are without pay.
Finally, don’t buy on impulse. Sure you can afford that, XXXX, but the pleasure is usually short lived. Pray to need what you have and want what you need.
Have fun - below my means.
August 11th, 2008 at 4:22 pm
Interesting that this entry appears as I just listened to an InvestTalk podcast with the same theme (http://blog.investtalk.com). I think that it’s very difficult to compare one’s savings plan against another’s, and in the end: whether to save or not depends on so many factors that perhaps educated instinct is the best preparation.
August 17th, 2008 at 5:36 am
Every 1$ saved can be worth $100 when put into a simple savings account based on compound interest. So no, their is absolutely no such thing as saving “Too Much”.. in my opinion, no one saves enough!