7/21/2011 4:42 PM ET|
Saving too much for retirement?
Yes, it's possible (though it's not likely). However, there are some telltale signs that you're paying too high a price today in your efforts to fund your future.
There are many rules of thumb for retirement investing. Some people say that if you save 10% of your income, you'll be fine. Other people recommend maxing out your retirement plan at work or maxing out your IRAs. Some investment advisers recommend a combination of retirement accounts and additional investments.
Rarely do you hear a retirement planner say you are saving too much for retirement, but this is becoming a popular sentiment in some circles.
Can you save too much for retirement?
According to some financial analysts, the answer is yes. But before you take that as a license to stop saving, you should look at both sides of the story. Then decide how best to allocate your income among your normal living expenses and investments.
How do you know if you are saving too much for retirement? The first question you have to answer is how much money you will need for retirement. Unfortunately, it is difficult -- if not impossible -- to know the exact amount of money you will need.
There are too many variables to make an accurate assessment, especially if your retirement is decades away. For example, you need to account for investment returns, inflation, rising health care costs, increased longevity, changing financial goals and fluctuating income during your working years.
Sure, you can plug numbers into a retirement calculator and get a ballpark estimate of your retirement needs. But you have to remember that a retirement calculator is only as good as the information you feed it. So unless you have a crystal ball, you will be raising as many questions as you answer.
You are saving too much for retirement if your current rate of saving causes personal, emotional or financial hardship. If you are sacrificing your health or quality of life to save for retirement, then you need to scale back. Otherwise, you probably aren't saving too much for retirement.
Contribute aggressively while you can
You can't control most of the factors that affect your retirement plans. But you can control how much you contribute, and contributing aggressively while you can gives you more options later.
My personal goal is to contribute as much as I can while I am able, and if I have too much money when I near retirement age, then I will have options such as retiring at a younger age, having more money to spend in retirement, or having more money to give to charity or my family. All of those options are more appealing to me than not saving enough and having to scale back.
It's all about balance
Retirement planning is important, but I think most retirement planners who caution against investing too much are really trying to say you need balance. You shouldn't sacrifice a decent quality of life just to max out your 401k. It's OK to take a vacation, buy a big-screen TV, and otherwise enjoy yourself. But don't neglect retirement planning. That would be irresponsible and dangerous.
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Pretty simple. Save as much as you can NOW. Its impossible to end up with too much money, but it is possible to have too little. Don't kill yourself, but keep your goal in mind. If you get lucky, you might even be able to retire an a younger age than you planned. Sure beats not saving enough and working later.
My wife and I both put 18% into our 401k. That isn't counting the 6% company match. We do without a lot of things, but we make it. Our plan is to retire at 60. I'm absolutely amazed by people my age (37) that put in 6% then have two (thats right TWO) 401k loans out at all times. Plus maxed out credit cards....hope you guys and gals like to work, because you will be doing it until you die. I'll do without a new car, cable and other things I can live without. It will make it all the sweeter when I walk out for the last time.
I agree with you. Those of us who have done without, so that we could make sure we have plenty to retire on, are going to get screwed because we will be the only ones with money. We should have bought more house, more car, more everything, than we could afford and then let ourselves be bailed out. We could have all the fun and let someone else pay for it.
This is just about the dumbest thing I have ever heard. What an oxymoron. The article counters itself out by stating that there are too many variables to know exactly how much one would need.
Gone are the days of no nonsense, point A to point B useful savings information, with ideas, information and financial tips that actually work.
Personally, I am taking what my parents did to save and retire seriously, now more than ever.
What terrible advice. I personally have more saved now than the average 60 year old for retirement and they're telling these people to save LESS?
The tax beneifts alone are worth it.
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