Do I Have Too Much Saved for Retirement?, by Bill Hoff

This article was originally published here

When it comes to retirement, saving too much can be just as damaging as not saving enough. For the aggressive savers out there, you’re probably accustomed to putting a higher percentage of income away from an earlier age. If you’re comfortably in the seven figures with some time to go until retirement, are you saving too much? 

Of course, we cannot possibly address individual situations in one article, so if you’re concerned, speak with a financial advisor (they can provide tailored advice). Generally speaking, there is such a thing as saving too much. It’s an excellent problem to have, but it still requires careful management to meet your goals and enjoy life the way you want. 

What do we mean? Well, we shouldn’t sacrifice today to live comfortably in retirement. Saving is great, but you’ll never be as young as you are right now. Often, it’s about finding the balance between living now and living in retirement. Although we don’t like to think about it, many older workers are robbed of their retirement years; this is hard to take when they made sacrifices at a younger age to have more money in retirement. 

If you’re not a huge spender and you’re happy with life right now, there’s no reason why you shouldn’t continue aggressive saving strategies. If you’re living frugally, it sounds as though you should readdress the balance. 

Ultimately, the debate over whether you have saved too much comes down to how you’re living now. If you’re happy in life and have seven figures in a retirement account, and you’re financially comfortable, we don’t see any reason to change. The critical question is how you feel right now. 

• Are you focusing so much on tomorrow that you forget today?

• Are you foregoing experiences in your desire for financial security? 

• Do you find yourself continually making sacrifices or saying ‘no’ because of money?

We think the only reason to re-evaluate savings is if you lack joy in life right now. This being said, we appreciate that some will have concerns over large tax bills in later life. Two main factors affect a tax bill:  

• The amount you withdraw over a single year 

• The number of accounts from which you withdraw 

Many retirees make the mistake of withdrawing from accounts that are all pretax dollars; with every withdrawal, there will be an unwanted tax bill. The way to beat this is to have traditional accounts with pretax dollars, and Roth accounts with after-tax dollars; withdrawals from the latter are tax-free. 

These days, every account and system has benefits and drawbacks, so do your research and speak with experts before making big decisions. When it comes to saving money, numerous supplemental accounts and alternatives are available from life insurance to taxable investment portfolios. 

Even for those who are over-saving, you can never neglect retirement planning. Just because you’re saving heavily, this doesn’t mean you will have a well-rounded nest egg when the time comes. It would help if you also addressed the important questions like when to start claiming Social Security, how to deal with additional income, health issues in the family, and how to enjoy retirement so that you don’t waste all those years of aggressive saving.

Additionally, we shouldn’t forget estate planning if you want to leave some money for loved ones or charities. As well as saving for you, we’re sure you’re also saving for others. Without proper estate planning, there’s a risk your money won’t go where you want it to go. When you give money to charity, you’re subjected to less tax.  

In truth, the laws and regulations are always changing. With the Secure Act passing last year, the stretch IRA provision was removed for inherited accounts, leading to higher tax bills for those left behind. 

Conclusion 

There’s nothing wrong with aggressive saving as long as you aren’t reducing your standard of living. We believe in finding a balance between the present and the future. It’s all well and good having financial resources in retirement, but this is wasted if you don’t have the health, experiences, memories, and motivation now. 

If you’re happy in life and are still managing to save well, you deserve congratulations; this isn’t something that everybody can do!