Is there such a thing as saving too much?

[Gumby]

.... Skip ahead a few decades, we have been happily FIRE'd now for 6 years and they are still working. They now say, "You guys were so right. We're sorry we didn't pay attention to what you were doing and learn from you!"....

Your friends are very unusual in that regard. Most people will do almost anything to avoid admitting that they were wrong.

 

[PatrickA5]

You're doing great! When I was 31, we had a negative net worth and $30K in credit card debt!

But, I worked for a great company with a pension and retiree health. Ten years later, (at 40) my company got bought out and my 80% pension value suddenly turned into a measly $12K added to the new company's cash value pension plan. Oh, and the retiree medical disappeared too. That's when we finally got serious about saving.

So, keep up the good work. You've got a great start. Save as much as you can while still having a quality life.

 

[Scratchy]

I don't plan on leaving the fed prior to 57 due to the fact that my significant other has some medical issues which would make her healthcare pricey and by waiting until 57 I'll be able to keep my health benefits into retirement.

Her medical issues, i.e. pre-existing conditions, should have no effect on the price of any of her insurance options in the future, assuming she is insured by an ACA compliant plan (whether employer based or not). Of course, this assumes the ACA regulation that pre-existing conditions cannot be used for underwriting is not tossed away at some point in the future.

In my opinion, the main value of an employer based health plan to someone with pre-existing conditions compared to someone without pre-existing conditions is that, depending on where you live, exchange based health plans may have more limited provider networks than employer-based plans. This may be if critical importance if her medical condition is something where maximum flexibility to pick providers is desired, including traveling outside of local area.

My point is I agree employer based health benefits can be very valuable especially to someone with complex medical issues. But her pre-existing conditions should not affect the cost of her health insurance in the future.

 

[livingalmostlarge]

If you are happy with the lifestyle you have keep saving. If you aren't then loosen up the purse strings. Sometimes it's not about retiring early. Sometimes the extra $ allows you to take risks and do something you wouldn't normally do. Being responsible allowed us to take a year sabbatical and move without income and switch careers. It has allowed us to now do a startup and live on a much reduced salary for DH. So sometimes it's not about retiring.

Maybe your wife gets sick and you want a year off but can hang onto job but not income? savings = time off.

 

[daylatedollarshort]

I don't want to not max out my retirement accounts though as it doesn't hamper our lifestyle. I feel like I'll have FOMO of not investing. We live in a typical lower middle class neighborhood and are very happy with our current luxuries we do have. We are really trying to abide by The Millionaire Next Door way of life. As most of my coworkers live in homes 2-3x the value of mine.

We have also always been Millionaire Next Door fans. We bought a nice house in a good location as that has been an appreciating asset, and tried to avoid spending a lot on depreciating assets. Now that we are retired, if we decided to downsize, we could live well from the rent on our current house alone.

During our working years we had fun and still saved money. Before kids we belonged to an adventure co-op at a college with volunteer instructors for activities like canoeing, kayaking and whitewater rafting and cheap equipment rentals. On weekends we'd go hiking, camping or overnight paddling trips on some scenic river. We both had tech jobs in the Bay Area so it wasn't hard to try to live mostly on one income. It always amazed us the coworkers who had two decent incomes like us yet were always broke from overspending. We were able to retire a decade early and still have fun hobbies, though they are a bit more sedate now, like going wine tasting in Napa with a Groupon or seeing a play in the city on discounted seat filler tickets.

A real money saver for me is reading books on happiness studies. Most of the things that science shows make people happy like good friends, getting out in nature, music, keeping a gratitude journal, being a part of the community and social connections don't have to cost a lot. Studies actually show that people who are more materialistic tend to be depressed and unsatisfied with life.

 

[pdxgal]

Using the 4% rule of thumb I'll be able to draw down 96k a year from my retirement accounts which combined with my pension will be much greater than my current income.

FWIW the 4% 'rule' has come into question lately given the current state of things (inflation, Covid, low bond yields). Think there are threads here about it. One mentions a particular Case-Schiller index as I recall to serve as a guide, based on the year you ER. In my case the suggested SWR is more like 3.2%. Times change, so do 'rules'. As an example, the classic "Your Money or Your Life" advised setting up a bond ladder to provide ER income. That worked when the book was first published but not so much now (even the Better Road Map Foundation behind YMOYL has acknowledged it). Personally I erred on the side of being conservative, since I don't have any COLA pensions and have some doubts about SS in the future. Only time will tell if I over saved

 

[silvor]

At 31, you can’t over save. .

 

[teetee]

I'll second that. I quit work entirely to go to law school in my early 30s. I was able to pay cash because I had saved a lot of money in my 20s, when I was working as an engineer.

That must be a really good journey. I have no kids but I contribute $4000 a year into my 529 so if my niece (she is 3 and my 529 has 30k now) won't use it 15 years later, I can enroll into a college myself and be a full time student. That will be pretty cool. My current work involves troubleshooting and providing guidance to PhD level customers. Getting organized education would be a great vacation for me...

 

[athena53]

A real money saver for me is reading books on happiness studies. Most of the things that science shows make people happy like good friends, getting out in nature, music, keeping a gratitude journal, being a part of the community and social connections don't have to cost a lot. Studies actually show that people who are more materialistic tend to be depressed and unsatisfied with life.

My late DH and I made travel a big priority before I retired and I don't regret that at all- he was 15 years older and died 2 years after my retirement so it would have been a bad decision to postpone all the good travel till I retired.

I agree with those studies, though. I've been doing fine and just inherited money from my Dad that increased my invested assets by about 7%. When a large part of it hit my Fidelity account yesterday I joked about test-driving Porsches this weekend but really I have a good life. More money won't make it better. I'll be giving away the inheritance over the next 10 years, mostly to my grandchildren's 529 accounts and the rest to charity. THAT will make me happy.

 

[DayDreaming]

I'm 60 and retired. In hindsight, I guess I did save too much, but I have no regrets. The comfort level of not having to worry about money now - that's worth a lot to me.

The thing is, I never deprived myself of anything while working. I was lucky to have a job that paid well, I enjoy having a pretty simple lifestyle, so everything extra went into my 401K. If I had spent more just because I could, I don't think that would have made me any happier.

So if you can easily save money, without feeling like you're depriving yourself of anything, then keep saving and don't ever think that it's too much - like others have said, a lot can change.

 

[Time2]

About the advice to the OP to pay off the truck but not the house, I wonder why. Both are at 2.25%.

Being 31 and having someone say, "I have this guaranteed 2.25% investment, do you want to buy in?" The answer should be no, I'll take my chances on getting 10% over the next 25 years in the stock market. Or 8% or 7% or 6%...

 

[captain3d]

The problem with saving too much and living frugally is that you do not know how to spend the money later.

Need to relearn the spending skills which can be hard.

 

[Time2]

The problem with saving too much and living frugally is that you do not know how to spend the money later.

Need to relearn the spending skills which can be hard.

I'll second that learning to spend can be hard. What need do I have, OK no needs what wants, I have what I want, so...

But, I'm glad we had the extra funds to put a child through Dental college so they have no debt when starting practice.

 

[iloveyoga]

The problem with saving too much and living frugally is that you do not know how to spend the money later.

Need to relearn the spending skills which can be hard.

It took a while, but I think I have mastered this.

 

[FindingForward]

The problem with saving too much and living frugally is that you do not know how to spend the money later.

Need to relearn the spending skills which can be hard.

It's a fun problem to work on, should one be fortunate to live long enough to experience it. Especially considering the alternative.

 

[Koolau]

This is one of those issues that has so many variables that we tend to measure with a micrometer and end up cutting with an ax. Time, inflation, investment results, black swans, how long you might live, on-and-on, make the problem so complicated as to be impossible to get it "right."

SO, having said that, WAY better to save too much than too little. I'd say that answers the question with a resounding "No!" There's no such thing as saving too much. On a practical note, a better question might be "What proportion of your savings should be in qualified plans (401(k), tIRAs, 403(b)s, etc. etc.)? We'll save that for another thread as YMMV.

 

[Badger]

Your thinking is very sound. The only thing to remember is the old rule "No plan survives first contact with the enemy." In your context, this means that a lot can happen in 25 years, so your retirement plan is not a ship that you can launch and forget about. Just watch carefully -- annually is good, manage your asset allocation to suit your time to retirement, stick with a Bogleheads portfolio or similar, and history says you'll be fine. Remember Warren Buffet's advice, too: "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell. ... Lethargy bordering on sloth should remain the cornerstone of an investment style."

Regarding paying down the house loan, that is debated endlessly here. My sense is the most believe as DW and I do, that being debt free is a very satisfying feeling and that interest rate arbitrage is an uninteresting hobby.

Regarding the truck loan, I think there is at least a strong minority here, including DW and me, that thinks car loans and leases are deals with the devil to be avoided at all costs. Other than my first (used) Porsche right out of grad school, we have never bought a car that we could not afford to pay cash for.

about the only thing I'd do in your place is hold off on savings temporarily, pay off the mortgage and any other long-term debt (credit cards, school loans, etc), take on no new debt and then resume savings and investment. but that's me. otherwise, you're doing fantastic. and to answer the basic question...no, you can't save enough unless you're denying yourself basic life support.

+1 for each
Since we were half way through our mortgage and it didn't benefit us tax wise we paid 2 full payments a month. One was the mortgage payment and the other of equal amount was put toward the principle. It was paid off quickly so we continued with the total amount toward maxing out our 403b(s), Roth IRAs, with more into taxable accounts. We also stopped buying new cars and bought used cars with cash that we drove until it was no longer financially sound to fix them. We got rid of all but 2 credit cards and have always paid off balances every month. Our lifestyle was lower middle class because we were living on one income with the other going toward all the above. We were debt free within 6 years. Then that one income we were investing was growing our retirement investment fast. 10 years later we retired with no worries about the future. Our middle class neighborhood has become upper middle class and our house is now worth 20+X what we paid for it. There is more money coming in each year than we spend but I have to say we are still frugal by choice.

We retired much later than your plan but for similar reasons that you have.
Now we have way more than we will ever spend with no needs and have no real wants for material things that we can't easily buy with cash. Now the fun is that I know my wife will be taken care of for the rest of her life, to gift to my wife's grown children, and donate to local responsible animal rescues. We have traveled almost all of the US and more than 13 countries around the globe and will continue once it becomes safer from our perspective.

It has worked for us but only the people here probably understand what it takes.


Cheers!

 

[daylatedollarshort]

My late DH and I made travel a big priority before I retired and I don't regret that at all- he was 15 years older and died 2 years after my retirement so it would have been a bad decision to postpone all the good travel till I retired.

I agree with those studies, though. I've been doing fine and just inherited money from my Dad that increased my invested assets by about 7%. When a large part of it hit my Fidelity account yesterday I joked about test-driving Porsches this weekend but really I have a good life. More money won't make it better. I'll be giving away the inheritance over the next 10 years, mostly to my grandchildren's 529 accounts and the rest to charity. THAT will make me happy.

We traveled a lot when we were younger due to work, family in other states / countries, and for fun but we looked for good deals. Like Disneyland passes used to be pretty reasonable so we had those every year when the kids were growing up, we'd go to Hawaii on good value package deals, and we could drive easily on the weekends to places like Yosemite, Lake Tahoe and Carmel. We could travel more now if we chose to but we have other hobbies we enjoy more these days.

We also plan to start giving money to our adult kids including passing along a recent inheritance. I've started by spending money on them now like expensive restaurant meals when they visit, which aren't important to us but they seem to enjoy. So far in December I've spent much more on them this month than us.

 

[Finance Dave]

So I am 31 and currently have a planned retirement date of 57 years old with the Fed (I know 57 isn't really that early). If I keep my current investments going of maxing out my TSP and Roth IRA. Assuming a mild return over 26 years of 6% I'll have a little over $2.4 million in my retirement accounts. I'll also be collecting 38% of my salary which is currently at a base of $100K pre-overtime. I don't plan on leaving the fed prior to 57 due to the fact that my significant other has some medical issues which would make her healthcare pricey and by waiting until 57 I'll be able to keep my health benefits into retirement.

Using the 4% rule of thumb I'll be able to draw down 96k a year from my retirement accounts which combined with my pension will be much greater than my current income. Due to this I think I may be saving too much. I don't want to not max out my retirement accounts though as it doesn't hamper our lifestyle. I feel like I'll have FOMO of not investing. We live in a typical lower middle class neighborhood and are very happy with our current luxuries we do have. We are really trying to abide by The Millionaire Next Door way of life. As most of my coworkers live in homes 2-3x the value of mine.

I have an additional $2000-$3000 a month I have been putting away into a brokerage account but I feel like that isn't really necessary. I'm now debating on using it instead to pay down my truck and house even though both are at a 2.25% interest rate and I know the math says the money would do better in the market. If I do this route the truck would be paid off by fall of 2022 and the house would be paid off by the end of 2025 beginning of 2026. I feel like this is a smart call as an effective 2.25% guaranteed gain over 4 years feels pretty good to me. I also want to at least pay a good chunk of the house down as using a VA loan I didn't put anything down on the purchase. Luckily thanks to the housing boom recently I do have positive equity in my home.

What do you think? I feel like since I'm already going to exceed my retirement goal I can decide to pay down my home or really spend the money however I see fit.

I really appreciate your time and advice in advance.

I disagree with the bold statement...it ignores risk. When you pay off your house or debts, there is no risk. The market comes with all sorts of risks. Google "the lost decade japan". Crap happens.

You have a great plan and are dedicated to it. But things happen. Serious disease, car accidents, marriage/divorce, failed business ventures, children, and so on. Keep adjusting your plan along the way.

But remember, don't save so much that you don't enjoy life along the way. Treat yourself sometimes, you're doing great.

 

[Closet_Gamer]

Congrats on a good start.

I'm 50 years old and appear to have over shot the mark in terms of my target savings ... much more than planned and not done yet. But I'm happy with where I'm at, don't regret the choices made, and the cushion brings both serenity & flexibility to do things I hadn't really thought possible.

My suggestions:

1) Life is not a balance sheet exercise -- its to be lived. But part of living well is the solid management of money. So find the balance between savings for the future and enjoying today.

2) A practical way to do that is to take every raise you get and divide it 50% to savings and 50% to lifestyle. That gradually creeps up your savings rate and allows you to enjoy a bit more each year. (Inflation may make that much more difficult for a while.) At some point you will hit a lifestyle that needs no adjustment and nearly 100% of raises will go to savings.

3) Avoid consumer debt. Whether or not to pay off a house is really an AA decision. Again, balance. People who pay off the house but then do nothing else are totally screwed. We paid off our house in our early 40s. Mathematically that was a bad choice, but one I would make again. I like having no debt and I've plowed the payments into the market. YMMV

4) Occassionaly check out the site: Rich, Broke or Dead?
https://engaging-data.com/will-money-last-retire-early/

Mortality is a real thing and you can't take it with you.

Good luck.

 

[TheWizard]

Lots can change as everyone has said.

There is a 50% chance OP will be divorced, which will cut OP's savings in 1/2 at a minimum.

Quite true, but henceforth, there would be 50% fewer people for those savings to support, assuming a minimal alimony situation...

 

[tulak]

Quite true, but henceforth, there would be 50% fewer people for those savings to support, assuming a minimal alimony situation...

This can be a contentious subject, but something to consider. We never deprived ourselves while saving a sizable amount.

That allowed us to split our assets 50/50 and still be on track for an earlier retirement. If we didn’t divorce, we’d have enough now for a comfortable retirement. Since we did save well, I’ll have a comfortable retirement in 5-7 years, around 55. Not bad and makes me happy that we saved as we did.

My advice is to avoid lifestyle creep. We spent a lot on vacations every year, but it was the same amount. We didn’t upgrade to nicer accommodations, etc, and continued to travel to inexpensive places. Same for cars, which we drove forever.

Unfortunately, the math of half the expenses doesn’t work. It’s way more beneficial to have a partner, especially if it’s dual-income.

 

[Gumby]

Quite true, but henceforth, there would be 50% fewer people for those savings to support, assuming a minimal alimony situation...

I think a general rule of thumb is that household expenses are proportional to the square root of the number of people in them. So, one person can live for about 70% as much as two living together.

That's the method the Congressional Budget Office uses to normalize household income for comparison purposes; the square root of the number of people in the household.

Because households with identical income but different numbers of people can differ in their economic status, CBO adjusts income for household size by dividing household income by the square root of the number of people in the household.

Source https://www.cbo.gov/system/files/201...old-Income.pdf Appendix A, p. 27

 

[dmpi]

The problem with saving too much and living frugally is that you do not know how to spend the money later.

Need to relearn the spending skills which can be hard.

I too had this problem. I changed my philosophy. When you spend you create jobs and help people acquire happiness & satisfaction from working. We're big tippers and we compliment people when they do a good job. Also a lot tasks that I use to do myself I now hire others to do. You can't take it with you. Ultimately you're responsible for allocating your wealth to others. If you have too much money when you die - federal and state estate tax will take their 'unfair' share. For me that's the worse case scenario.

 

[OverThinkMuch]

I did really well this year, and went from retirement assets to "I can't spend it" assets. Of course, each person's ability to spend varies.

In my case, I'm planning to give to charity, so why not pull that forward? I donated stocks to a "donor advised fund" (DAF), which then sells them and reallocates the proceeds. Now only do I take the tax deduction, but there's no tax on the stock sale (which must have been held 366+ days).

So that's my recent solution - contribute to a donor advised fund for the tax advantage, then make donations from the fund.