The short answer is of course yes. If the byproduct of a middle class income, savings rate and lifestyle is $2 million unspent when you die at a ripe old age then yeah you saved too much. Here is the link to the Yahoo piece.
The flaw to this line of thought (actually there are a bunch, but here’s the first one) is that depending on when you start, when you retire, what the market does and a couple dozen other variables two people with similar incomes, savings rates and lifestyles could wind up with much different outcomes; one has $2 million dollars when they are 106 and the other runs out of money at 81. Again the assumption is that of a middle class person not a wealthy person.
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A huge part of how people sort this out for themselves will boil down to personal preferences. The idea of having “saved too much” means having more options in the face of some future, unknown obstacle or hardship that might come along. To recycle an old joke of mine, if either my wife or I need a lifesaving, experimental cuticle transplant that costs $300,000 I would prefer to have the money available without totally blowing up our financial plan.
The idea that various rules of thumb, like you need 80% of your income, may not be that useful is a productive dialogue and that was the focus of the article. A pet peeve of mine in this discussion is the focus on income as opposed to expenses. If you live an $80,000 lifestyle on a $200,000 income then chances are you don’t need to worry about generating $160,000 per year from your portfolio when you retire.
In thinking about your expenses, the article correctly acknowledges that some expenses will go down, some will disappear and some will go up. Some of this is generic like no more FICA, no more setting money aside for savings (you would just spend less potentially), fuel for your vehicle might go down (depending) and healthcare–well who knows, isn’t this expense supposed to go down under ACA?
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This is why I have written so many times about spending habits. If you believe your number needs to be $1 million because you believe you need $40,000 (4% rule) plus $30,000 from Social Security but you only end up at $875,000, can you make it work on $35,000 instead plus the $30,000 from Social Security? For purposes of this article we will assume Social Security will remain viable.
Whether you can make that work or not, it will be easier to make it work if you start thinking about spending habits before you retire as opposed to retiring and then trying to go cold turkey on a bunch of things.
Another point that came up in the article is the tendency to spend more earlier on in retirement, the more active phase, usually this refers to traveling.
I’ve had a lot of posts about working in retirement; monetizing a hobby. This can obviously be a way to pay for relatively expensive trips or other lifestyle interests during the earlier years of retirement with a little left over to go toward regular monthly expenses.
The bigger elephant in the room to the entire Yahoo article is that saving too much is probably not correct so much as the amount we are told we need is too large. With average balances and savings rates being what they are, there are not too many people saving too much. Most people need to save a whole lot more to get to 50% of their (inflated?) number.
Unrelated, my fourth article for theBright.com posted yesterday and is about budgeting. As a reminder these articles are geared toward firefighters and EMS personnel but I would be grateful for any click-throughs to the post and if you have anything that you think would be a good Q&A please leave a comment here.
The pictures; a buddy from the fire department had company tickets to the Cardinals’ game on Sunday. It is a beautiful stadium and they have a huge grassy area for tailgating (as opposed to the parking lot) that was pretty neat.
A big thing with professional sports of course is buying player jerseys. I was very much in the minority not having one but I was very impressed by the number of Pat Tillman jerseys I saw. It is a good bet that he will never be forgotten in Arizona.