In a previous post I discussed that we may actually be saving too much and that our retirement plans are well under control.
While most of us investors are constantly trying to make more money because that is the name of the game, some researchers have found that we might just be making too much of the “saving for retirement” thing.
Further evidence of this fact was found in an article on Yahoo Finance:
A group of economists is offering a wildly contrarian view: People may be saving too much for their retirement. A few go so far as to suggest that the financial services industry is deliberately encouraging over-saving because it profits from managing such assets.
Consider a recent study conducted by Paul Smith and Lucy McNair of the Federal Reserve Board, and David Love, an economist at Williams College. They found that 88 percent of all households with breadwinners over age 51 had accumulated sufficient resources to finance adequate consumption in retirement.
A separate study by John Karl Scholz, an economist at the University of Wisconsin, Madison, and two other researchers found more than 80 percent of households headed by Americans born between 1931 and 1941 have accumulated their optimal wealth targets for retirement.
The other 20 percent missed their goal by a relatively small margin, according to the study published in the Journal of Political Economy.
It is a bold claim to state that the financial services industry is deliberately encouraging over-saving in order to pad their own pockets.
I find this to be utterly ridiculous!
It is well known that banks make the majority of their money from lending and the spread between deposit rates and loan rates. Banks and Credit Card companies would be far better off to encourage spending rather than to encourage saving if they were simply looking to pad their revenues.
On the other hand
On the other hand we have the brokerage firms who make money on transaction fees and margin interest as well as the mutual fund companies who charge fees for managing money for retail investors.
It makes sense that these companies may very well be encouraging excessive savings for the benefit of their own revenues.
Given the choice, I would rather be over-saving than over spending and I believe most consumers would make that same choice. However, this may come at the cost of not enjoying my life to the fullest during my “youth”. It is important to make the most of the money we have.
Kudos to anyone who can find that delicate balance of a full lifestyle during their working years and the retirement we’ve all dreamed of!
* Please let me know when you find the secret