How Much Is Too Much When It Comes to Retirement Savings?

When it comes to money, there are two prominent groups.

One group says tomorrow is not guaranteed. That you should live for today. Why save when you may not even be around to use the money? (Of course that group risks being impoverished, especially later in life.)

Another group glorifies delayed gratification. Why enjoy today when you can reap the rewards of compound interest years or decades later? (This group risks becoming obsessed with how much their portfolio is worth and may fail to stop and smell the roses along the way.)

Generally speaking, saving for retirement is a huge priority. And living on less than you make should be a virtual requirement. Those things are financially responsible ideas that require discipline. Sounds good, right?

In any case, following a specific philosophy without ever questioning if there’s such a thing as too extreme seems unwise.

Should I Pull Back on Saving for Retirement and Enjoy Today a Little More?

When have I saved enough for retirement to start saving a little less and spending a little more?

That’s what a Clark Howard listener recently asked.

Asked Shannon in Georgia: "How much is too much for retirement? I realize this varies based on lifestyle, but I've been blessed to be contributing to my retirement funds (401k, Roth IRA) since my first real job out of college. I'm 43 and married with two teens (AHH!).

"Retirement projections in working with Fidelity currently show the possibility of [spending] over $10k/month with no additional contributions. We don't spend half that per month now! We've sacrificed so much to save, but I wonder if I should pull this back to enjoy more of TODAY at this point. What are your thoughts?"

Clark congratulated Shannon on being such a prolific saver. But he also cautioned her against thinking that she’s done as far as saving for retirement.

Hopefully, her portfolio will continue growing year after year for a long time to come. At the same time, there are other things to consider:

  • Inflation will continue eroding her purchasing power.
  • Medical expenses later in life keep getting more extreme.
  • Taxes are likely to rise in the future.
  • Social Security may undergo some changes before she reaches retirement age.
  • Lifestyle creep can become real. If you start increasing your spending, it can be hard to return to your previous level.

Here’s what Clark had to say about the idea that she could spend $10,000 a month in retirement already.

“If you want to reduce what you’re saving to have a little more fun in your life, that’s fine. But I do want to say that if you stopped saving, you’re 43. You can figure that every 10 years your purchasing power will drop by 40 to 50%,” Clark says.

“So $10,000 would be the equivalent buying power of maybe $5,000 or $5,500 per month 20 years from now. So it’s not as much money as you would think.”

It’s OK To Be Nuanced When It Comes To Saving for Retirement

Let’s revisit the idea at the beginning of this article.

Clark’s ultimate goal in encouraging you to save is for you to achieve financial freedom. Shannon seems like she’s already well down the path to doing so.

Personal finance is complex for many reasons. But each person truly is different in terms of goals, priorities and circumstances.

You don’t want to shirk responsibility or leverage ideas such as “YOLO” (You Only Live Once) to be reckless with your money. But if you’re an extreme saver, and you’re well on track for your ideal retirement, you don’t have to feel guilt about enjoying some of the life you’ve created for yourself right now rather than decades later.

“If you want to dial back a little bit and have a little money to treat yourselves more now because you are so good at living on less than what you make due to the 401(k), Roth IRA, all the things you’re doing,” Clark says. “If you want to do that, go ahead because you’re already so far ahead of the game in your early 40s.

“But don’t believe that what looks like a big pile of monthly money a generation from now really is as much money as it appears to be. It’s the opposite of where the mirror says objects are closer than they appear. The dollars are going to be worth less than they seem.”

Final Thoughts

The best part about personal finance is that you get to choose your path. It’s up to you to decide what type of lifestyle you want to live in retirement one day. You can set your own goals and decide how much is enough for you.

Just make sure you're considering factors such as inflation and healthcare costs later in life. Being as realistic as possible, and perhaps even getting advice from a fee-only fiduciary even on an hourly basis, can give you full confidence that money you'd rather spend today won't muddle your hopes for tomorrow.

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