Saving Too Much For Retirement?

I recently came across an old article from the New York Times that offers us a view of retirement planning that we don’t often hear…are we saving too much?

According to them, the financial industry, with its ostensibly objective online calculators, overstates how much money someone will need in retirement. Some, in fact, contend that financial firms have a pointed interest in persuading people to save much more than they need because the companies earn fees on managing that money.

The more realistic amount could be as little as half the typical recommendation made by Fidelity, Vanguard or any number of other financial institutions.

For a middle-income couple, that could mean trading $400,000 in retirement money for about $3,000 a year more during prime working years to spend on education or home improvement. For a middle-class household, that’s a lot of money, said Laurence J. Kotlikoff, a Boston University economics professor, who is on the forefront of this research into spending and savings, and is selling his own retirement calculator.

Andrew Behla is a case in point of someone who is not saving enough. Mr. Behla, a Los Angeles graphic designer and consultant, is at age 38 just starting to think about retirement. He and his wife, Michele Krolik, a payroll manager, together have just $70,000 squirreled away for their old age.

I think we will have to save a lot more, he said, a point on which the economists and the financial planning industry would agree. Even so, the couple recently bought a house and put extra money they had into improving it, figuring that over their lifetimes it will add handily to their net worth.

But other people like Beverly Alexander, 49, an energy consultant in Marin County, Calif., might be able to slow down. Her financial planner has her retirement finances mapped out to age 105 (her parents are still alive in their 90s), a plan that gives Ms. Alexander, a former utility executive, the freedom to quit her corporate job and live on her consulting income.

One reason I could retire, she said, was that I saved and I always lived below my means.

The findings of the economists are being met as most challenges to orthodoxy are: with stony silence or extreme umbrage.

I count myself as deeply skeptical, said Christopher Jones, the chief investment officer at Financial Engines, a financial planning software company.

The big financial services companies refused to comment on the research but they did say that their use of simple rules of thumb keeps the process of retirement planning less complicated, and thus, less daunting.

After the recent events in the market, we might be hard pressed to find anyone who thinks they have saved too much for retirement.

Nevertheless, I think the key factor in the entire article was the quote from M. Alexander who simply stated the most basic tenet of financial success… “I saved and always lived below my means” .

I don’t think that we need a “professor” to tell us that!


  1. Hi

    Thanks for the interesting post. One point that is frequently ignored in these calculations is “How much can you actually afford to save?”. There is no point in putting away a large sum for your retirement if this money is actually coming indirectly from borrowing. I think that this is probably happening far more than people realize.


  2. Nice update on this article. I would say that the main goal of retirement planning is not to rely exclusively on a particular super asset but rather on a diversified mixture of income producing assets – real estate rentals, stock dividends, bond income, online income..

  3. I think there has to be some balance. One needs enough to live comfortably in retirement, but sacrificing every pleasure just to have millions at 70 when you might be too sick to enjoy your money is stupid too. Would you rather travel when you have a lot of energy or when you have arthritis and your knees hurt?

    There are some expenses that are likely to be larger in retirement like health; at the same time some – clothing, car – are likely to be smaller. I heard a financial planner tell some woman planning for retirement how she’d need to allow for car payments becuase at an old age she’d want to change cars often??!! A home is likely to be paid off too. Also – would you want to live in the same house when you are old, no longer have kids, have no energy to take care of the house and your legs hurt when you climb stairs or would you want to move to a smaller condo? There are a number of things these calculators don’t consider.

    Also, I live right now on less than 50% of my salary without even trying – I still take vacations in Europe/Caribbean. There is no reason to think I’d need any more than that in retirement yet many of them suggest higher replacement amount.

  4. Interesting idea. Most people don’t save enough, but I do think the ones that do often save a little too much. Obviously if you have any debt you usaully should pay that off first, as that is going to save you more money in the long run.

    It really is a very good idea to live below your means. I had a good teacher tell me that. Not only will you save more, but then when trouble comes it won’t be very hard to adjust, as you’ll already be used to living like that.

    I’ve always thought it funny when you hear of the elderly having large sums of money, but they are too sick/fragile to do anything with it. As the above comment said, there is no reason to sacrifice every pleasure, but there certainly is a balance. You don’t want to live for the moment, but you also don’t want to be a stingy scrooge.

  5. Your saving plans should center around the fact that what kind of life you want to lead during your retirement. You must factor in vacations and unscheduled gifts for friends as well. Make some intelligent calculations and plan ahead and you will realize that saving up is not so difficult at all provided you have set yourself some realistic targets.

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