QotD: Is it Possible to Save TOO MUCH For Retirement?

Ramit over at IWillTeachYouToBeRich sent me a link to this New York Times article and asked me what I thought about it. I mentioned a similar article last month but somehow I missed the NY Times article.

The point of the Times piece is that financial institutions are overstating how much Americans need to save for retirement. The article claims that financial institutions have an incentive to get people to save and invest as much money as they can because the more assets a company can gather, the more income they can make. While I think this is true I also think that it would be irresponsible of the financial firms to suggest that people save less for retirement. I mean for most people retirement is a long way off. None of us know what the future will hold. We don’t know how expensive things will be nor do we know how long we will live in retirement. So, the prudent thing to do is save as much as you are comfortable saving.

I’m curious as to what you guys think about the New York Times article. Are you as skeptical of this piece as I am?

24 thoughts on “QotD: Is it Possible to Save TOO MUCH For Retirement?”

  1. I’m skeptical of both camps. My conclusion is that nobody has any idea how much money I need to save for retirement. Anybody who claims otherwise is selling snake-oil

    I don’t care if somebody says they’ve run retirement scenarios through 5M iterations of a monte carlo simulation. That tells me nothing; the equity market has been through events that statistically should never, ever, have happened, so what good are statistics in determining how ready I am?

    It reminds me of that classic line in Naked Gun… “He has a 50% chance of surviving, but only a 10% chance of that”.

    Aside from stock market variations, far too much can change to make any long-term predictions useful. Tax rates might go up (or down) substantially. Social security benefits might be cut. Inflation might go through the roof. The US might default on its debt. If you are 5 years from retirement, you may be able to make some reasonably safe assumptions. But if you’re 20, 30, or 40 years from retirement then all bets are off.

  2. Here’s the deal. I am saving as much as I can for retirement because it gives me peace of mind knowing I will not be a slave to my job forever but will have options when I get older. The fact is the if these guys are wrong, that means I’m 75 and broke or working which is no way happening for me. What I don’t understand is why we aren’t discussing that retirement should be based off of the amount saved that allows a person to quit working which can vary based off of returns and amounts saved. My feeling has always been save more and retire earlier not with too much or a set retirement date.

  3. I don’t have time to read the article, but “too much” is much better then “too little”. If I turn 67 (or whatever the age will be when it’s our turn) and I have too much money, I’m sure I’ll survive. Or, even better, I’ll retire early if I notice I’ve saved more then enough.

    Samerwriter offers some true and scary facts to consider when doing the “equation”.

  4. I AM 5 years from the official retirement age and I have enough saved that, given a reasonable set of assumptions, I can live a reasonable lifestyle ’till I’m 100+. The problem is that if I have more than I need, I will have a pleasant surprise, but if I am wrong, not having enough would be a disaster. The risks are not symmetrical even if the dollar amounts are. While I believe the likelihood of a disaster is small, it is NOT zero. As samewriter says “the equity market has been through events that statistically should never, ever, have happened”.

    If the NT Times article had said that the average 401k had $620,000 instead of $62,000 maybe I would not be so concerned for my fellow baby boomers. It is difficult enough for most people to save and an article like this just may cause people who were finally gearing up to really start saving to relax and not bother. I wonder how many people are going to have a more difficult retirement than they would have because of this article alone?

  5. Samerwriter is dead on about the variety of market variations. That said, it’s not as hopeless as he makes it out to be. For instance, one can (in order): not plan on social security for retirement, plan for high periods of inflation by having investments that earn more than the inflation, diversify out of US equities…

    In the end, I think if you just educate yourself to what those risks are and plan your best to avoid them, you’ll be okay in 98% of the many possible future roads. And if you don’t educate and plan, you’ll have to depend a lot more on luck and hard work. And even then you might be okay only 50% of the time.

  6. Everyone,

    You have all made some great observations. As Foobarista has pointed out in the past, this can play out in one of two ways:

    1. If the numbers seem too daunting for people (in other words, they feel like they need TOO MUCH for retirement) they may just throw up their hands and say forget it and not do a thing.

    2. If people read an article like the NY Times piece and get the impression that there’s nothing to worry about, then they might make decisions under a false sense of security.

    Finally, keep in mind that it is the “thoughts out there on the fringe” that get all the media attention. When you go along with what everyone else says, you don’t stand out. However, if you come up with some controversial “new” idea, you get lots of attention.

    I’d rather have too much than not enough!

  7. While it seems reasonable to not trust the financial services industry to decide how much of your money they should manage, is there anything about Laurence J. Kotlikoff that would make you trust his numbers? On the positive side, he’s an academic, making me think he has a level of objectivity. On the negative side, he’s SELLING HIS FREAKIN’ CALCULATOR! The calculator that’s getting him attention. Makes me a bit more skeptical. However, some of the articles he writes are actually interesting, relevant, nuanced, and free. http://people.bu.edu/kotlikoff/

  8. My financial planner and I squabble over this all the time. How much is enough? What number should I be planning towards? How much should I delay gratification to feel more secure in the future?

    My planner seems excessively conservative to me. But, I have come to realize that she plans to the 95th percentile confidence interval. And you know what – If I were in her shoes and responsible for helping somebody plan for their financial future over the rest of their life, I would be pretty conservative about it too.

    This is where you cannot always take the advice from your advisors at face value. Only I know how much a kitchen remodel or a new car would mean to me and how much future risk I’m willing to take for the sake of instant gratification.

    But, to the question at hand – Are people saving too much? Difficult to believe this is even a serious question? I would much rather save too much than too little.

    My goal is to both have a decent lifestyle AND save substantial sums for the future.

    FYI, As I’ve said before: My impression is that many, if not most people (outside the PF blogging community) are unconsciously planning to lay the burden of their retirement on their children. Not taking responsibility for one’s future amounts to the same thing as making somebody else responsible for you. I see examples of this time and time again.

  9. One wildcard that no one has mentioned is long-term care. You may think that you have enough saved for retirement but then you or your spouse ends up spending 10 years in a nursing home with Alzheimers. In Northern California right now LTC runs between $80,000 and $100,000 per year. That’ll do a number on anyone’s nestegg!

  10. One should probably consider the balance between funds put into retirement accounts and other after tax vehicles. It basically comes to liquidity. While it is possible to draw on retirement accounts early the penalties are there to discourage it. If one has sufficient momentum on 401k type accounts it may be prudent to shift some emphasis into a general securities account.

  11. THC, I read the link to your post. How about the comment from the retiree who thinks people are saving too much and who stated: “Most can retire comfortably on $300,000 a year with a diversified series of investments…” and then goes on to talk about how he has returned to work in his 70’s.

  12. I’m skeptical of anything that uses a superlative:
    -The Best ____
    -The Worst ____
    -The Most ____
    -The Least ____

    ‘Too Little’ and ‘Too Much’ fall into that category as well.

  13. I fall into the “rather have too much than too little” camp. If I saved too much, then I’ll take another cruise, or leave more to my children. Given that the boomers and older are really screwing their children and grandchildren by pushing the Social Security and Medicare costs onto them, seems like the least I can do.

  14. What gets me….with the average amount saved by a baby boomer being around $60,000, why columnists wouldn’t be telling the younger generations to not make this same mistake…which is EXACTLY what it is…a mistake. To go through life lacking financial discipline and expecting the government to provide for you as you age, is something we need to break from starting today.

    I would love to meet the 45-year old millionaire who is sending his kids to college that is complaining that he’s saved to much. It’s just silly.

    I mean who is this article directed at? The baby boomers with very little saved? Or the younger generations with NOTHING saved? WHO?

    If any of us posting today, come to a point where we are 50+ years of age and have $60K to our names, we are in for a long, long road of working. Which leads me to my next question, who hires 70+ year olds these days? At 73-years of age and $10,000 to your name, we will be sucking the system dry and will be taking public transportation to Wal-Mart to greet folks for 6-hours a day.

    This is something we do not have to deal with if we, as a nation, save money.

  15. I just got off the phone with my father-in-law (who is very much like a biological father to me) and was thinking about this question. He’s probably a good example of someone who “saved too much”. My in-laws are the “millionaires next door” that the famous book talks. Between two homes, a very significant 401K balance, and various other non-retirement investments, not to mention healthy pension and healthcare benefits, they are millionaires, even would never dream of acting the part.

    My in-laws are models of frugality and saving (except when it comes to spoiling grandkids). On occaission (after a couple of “beverages”) my FIL has commented to me that they have “more money than he knows what to do with” and “don’t need to touch the principal” – his words. FYI, if you’re thinking inheritance for me, think again, my bet is that either they really will need it as they age, or that it’s all going skip down to the grandkids (the lucky little devils).

    Does he have any regrets about saving too much? I think there might be one or two things. I think he would have liked to have traveled further and wider back when he was physically fit. But, that’s the only thing I’ve ever heard him say along those lines. Otherwise, I really don’t think he would have traded his rock solid financial security for anything they don’t already have.

    So, as my role model, that’s who I’m taking my cue from. I plan to live it up a bit more in my middle-years in terms of travel and city-life, but still sock away as much as I can bear, and then sort it our later if it turns out to be “too much”.

    It really is pretty sad that the press has latched onto this latest silly headline.

  16. I really doubt people are saving enough. Mainly because the article is looking at people who are 65 now and have pensions. The days of the pensions are gone. People who are 25-35 now, likely won’t have pensions.

    Thus they need to save a lot more. Someone in the 35-45 bracket might have a pension but not as secure, so the benefits can be cut.

    The idea is that comparing today’s retirees with someone 40 years from retirement is not right. Especially since things like SS may be revamped, it could become needs based, or the fact that pensions are vanishing fast.

  17. How can anyone claim to know how much someone needs to save without looking really close at how much they will spend?
    Having a sound retirement budget means looking at retirement income AND retirement outflow.

  18. “The Most” or “The Worst” should be reserved for shows with “The World’s Most/Worst Blankiest Blank.”

    Is it possible? Well, to be honest – yes. If you are saving so much for the long-term that you are suffering in the short-term, then you are saving too much! If you’re living a lavish life and barely preparing, you’re not saving enough!

    It’s a delicate balance – it’s going to be different for everyone – not everyone’s situation will be the same (kids, medical expenses, pets, lifestyle, desire to keep working or stay out of the work force).

    @THC – not everyone thinks they want to work at 70 after retiring at 50, but are you anywhere near that age to say that you wouldn’t? I’ve met a few older guys that are wanting to work again just to do something more than be retired.

  19. If I keep saving at my current rate and wait until 65 to retire, yes, I’ll have more than I need. However, I expect to cut back on retirement savings while my kids are in college. I might be unemployed for a while some time in the future. I might become disabled. I might want ot retire early. All that money in my retirement accounts is earning for me, so that I don’t have to work as hard to reach my goals.

  20. Anon @ 3:09pm – Perhaps that is the best way to look at it.

    I would like to reach a point, at a relatively decent age, say 50-55, where I can say – Yup, I’m done. That way, I could have the option to keep working like crazy so I can have excess funds to blow on travel, cars, boats, etc. -or- cut back to a more relaxed pace -or- take a job in the non-profit sector -or- take time off to write a book -or- just plain retire young.

    It’s all about having as many options as possible, being prepared for the unforseeable, and being able to finally take a deep breath and relax about the whole issue.

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