Can you save too much?
In 2019, it costs an average of $1 million (or more) to retire at age 65. That’s a big, intimidating number – and, honestly, most Americans aren’t on track to save enough to retire comfortably. A Northwestern Mutual survey recently showed that 21% of Americans don’t have anything saved for retirement, and another 10% have less than $5,000 in savings. This trend of under-saving for retirement can act as a kind of wake-up call for many people who are planning for retirement in the next 5-10 years. However, most of the people I speak with are already saving for retirement.
In fact, they’re so worried that they’ll be one of the 20-40% of people who don’t have enough saved for retirement, that they are actually over prepared. It might seem like over saving for retirement is a good problem to have. Unfortunately, that’s not always the case. Let’s talk about when oversaving is good – and when it can go too far.
The Benefits of Oversaving
The truth is that none of us know what retirement will hold for us. It could be smooth-sailing (literally) when you and your spouse buy a boat and spend summers sailing in Florida. It could be an incredible chapter of spending time with family and friends, and exploring new hobbies. I really want that for all of my clients and readers – and if everything goes smoothly, being over-prepared, or having too much in your retirement savings, is just a wonderful benefit of years of diligent saving and planning.
That being said, things don’t always go smoothly, and that’s just a sad fact of life. We lose spouses and partners. We experience health difficulties and unexpected expenses. We realize we aren’t able to take care of our home, and are forced to downsize before we’re emotionally ready.
Problems will crop up in retirement – big and small. Being over-prepared to cover the expenses associated with those problems is always going to be in your best interest. The last thing you want is to run out of money before you pass away.
Remember Regret Minimization
One thing I like to go through with my clients is a practice of regret minimization. These are the infamous deathbed conversations. Nobody ever said, as they are on their deathbed, that they wish they would have saved more. Nobody talks about how they wish they would have worked harder, or spent more time at the office. Nobody says they should have worried more about their finances.
They say they wish they would have spent more time with their family. They regret not taking that girl’s trip to Europe with their retired friends. They wish they would have pursued their passions, not squashed them in order to be “more practical.”
As much as saving for retirement is important – even critical – to your long-term well being, it’s equally important to focus on minimizing regrets, both today and in retirement. You can save all you want, but if you’re so stuck on having enough money for retirement that you forget to live in the moment and enjoy your wealth now, you’re going to feel imbalanced in your life.
Regret Minimization & Underspending
Many self-described savers transfer into retirement, and are terrified to spend their money. This often pushes them into a kind of stalemate with themselves – which sounds crazy, but it’s true. Spending the money you’ve saved can be nerve-wracking.
It can feel like you’re burning through savings that might be needed later to protect you and your family against financial disaster. I understand wanting to be prepared for every worst-case scenario, but it’s also important to give yourself room to enjoy the savings you’ve accumulated. Although underspending intentionally can be tempting, make room in your budget for expenses that will bring you joy in the moment. Travel, spend time with family and friends, enjoy your retirement – whatever that looks like to you.
How Do You Find Balance?
So, now you’re faced with the real struggle:
How do you find balance when you’re afraid to spend, wanting to over-save, but still need to enjoy your life and minimize regret?
It’s not easy to find a balance with spending and saving throughout retirement. What I’ve found helps my clients is to have a clear-cut plan in place. This means having a savings plan set out, but it also means planning for:
How you want to build your retirement income
What your goals are for your retirement lifestyle
How you want to live in the day-to-day during retirement
What values you have, and how you want your spending to reflect that
Aa retirement budget
An estate plan
Taxes in retirement
And that’s just the beginning.
When you have a well thought out plan for retirement, you can comfortably and confidently use your wealth in a way that lines up with your goals and values without feeling afraid that, if you spend, you’ll have to go without later in life.
Do you have questions about retirement saving? Get in touch and let’s talk about it.