Is It Possible To Over-Save For Retirement?

In Articles, Articles: Kansas City Office, Articles: Salt Lake City Office by Scott Dougan

There are countless studies that reveal how underprepared baby boomers are for retirement. As a group, it’s said that boomers are doomed to poverty lifestyles during retirement, that is, if they can ever retire at all. Sobering, indeed.

While I can’t comment on all people approaching retirement, I often consider how much saving is “too much.” So I ask you: Can a person save too much for retirement?

Before I offer my opinion, I’ll ask you to endure some nuance first. What is retirement anyway? For some, it’s the end of a long and focused career, for others, the beginning of a new lower-stress career or the point at which one no longer has to work for money. Since everyone will define retirement a bit differently, it makes sense to address retirement saving in the context of your own ideal retirement.

It’s very common for people to ask me how they’re doing compared to others who are also nearing retirement. They’ll also say things like: “We need to get to a million dollars (or two or three) before we’ll feel ready to retire.” When I ask where that number came from, the most common answers are 1. That’s what we feel we need to generate enough retirement income, or 2. That’s what we heard we’ll need. Either response can be correct, we just need to do a little more digging to determine which is best for the person I’m talking with. Since everyone has a different retirement definition and different needs, every person receives a different response.

Once we understand a person or couple’s retirement goals, it becomes clear that there are absolutely situations where people over-save for retirement. If, for example, your goal is to retire with enough money saved to continue your chosen lifestyle for the rest of your life, then any amount beyond enough is too much. How much is enough? It’s the amount of money, that when converted to a lifetime income that’s guaranteed, meets planned and sufficient unplanned expenses. After factoring in health care costs, inflation, gifts to loved-ones, and some other expenses that are very unique to you, a solvable math problem reveals itself. The answer to that math problem is enough. More than enough then, is…well, you get the point.

The cause of over-saving is generally a lack of a plan. Most people have no idea how much is enough, so they continue to save long after they could have chosen to focus on other things. While you may read this and say “You can never save too much or be too prepared!” I simply offer that there comes a point when your time may become more valuable to you than more money. It’s at that moment when you’ll be thankful you have a plan in place that offers the clarity you deserve to make wise decisions about how to allocate your resources, time and money, in order to live the life you’ve dreamt about. 

Maybe you’re already living the life of your dreams. Congratulations. You probably planned ahead in order to do so. If you’re not there yet, it may be wise to slow down and define where ‘there’ is and make your next steps confident ones.