Is there such a thing as saving too much?

[Koolau]

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.


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

I had not heard this before, but it makes a lot of sense. I've lived in households ranging from 1 to 5. It seems to be reasonably predictive in my limited experience. YMMV

 

[NW-Bound]

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%...

Having paid 14% on a mortgage on my 1st home bought in 1980, I think it's incredible to have someone loan money to you at 2.25% for 30 years.

It makes me want to remortgage my 2 homes.

 

[Time2]

Having paid 14% on a mortgage on my 1st home bought in 1980, I think it's incredible to have someone loan money to you at 2.25% for 30 years.

It makes me want to remortgage my 2 homes.

Been there also, First mortgage 13.75% for a 3 year balloon, because a 30 year mortgage was 16.75%. That was '84'

 

[HI Bill]

It seems to be that no one who saved too much so far in here regrets it.

True, but there are quite a few here who regret not retiring sooner. I waited till 2021 at age 55, and while I don’t feel as if I saved too much, I do wish I had hit my original goal of 50, when travel was possible, and I had more energy and better health than now.

 

[Andre1969]

True, but there are quite a few here who regret not retiring sooner. I waited till 2021 at age 55, and while I don’t feel as if I saved too much, I do wish I had hit my original goal of 50, when travel was possible, and I had more energy and better health than now.

I have a feeling that's going to be me. 50 had been a goal of mine for awhile, and for a moment it actually seemed doable. I saw my invested assets break $2M, which was the number I was shooting for. I still remember peaking on February 19, 2020, around $2.048M. My birthday is April 2, so I was seriously thinking about it. But then COVID had its way with me, and by March 23, when it bottomed out, I was around $1.361M.

Seeing nearly $700K disappear in a little over a month was a bit disconcerting. I knew it would come back at some point, but just didn't know how fast.

Anyway, by the time April 2 rolled around, I was back to around $1.55M. And now I'm around $2.5M.

Looking back, I probably could have retired at 50, would be perfectly fine right now, and chances are I'd go on to live a long, happy life and never run out of money. But, at the time it just seemed to make sense to wait and see.

Plus, we got sent home to work on March 16 of 2020, and there are no plans to bring us back in the foreseeable future. So, the past 1 3/4 years have been some fairly easy money. I've been spending most of my time homebound ever since COVID hit, so I might as well get paid for it!

 

[Perryinva]

Congrats to the OP for having the brains and ambition to take on their finances for the future. My 33 YO idiot step son can’t take responsibility for next weeks bills, much less his future retirement. He knows he lives in a paid for $200k house thanks to his being the only heir of his grandmothers estate (though we handled it) and just assumes that he will have plenty to retire on when we pass. No matter how much I tell him my plan is to spend it before we go. The concept of the future truly escapes him. Today is the only thing that counts. DW says he is mentally ill in a way.

 

[tulak]

It’s hard to spend down everything, so unless you give it to someone else, your step son will most likely get something.

I’ve moved beyond trying to figure out how people don’t save. The reality is that most of them will be fine. They’ve had a lifetime of experience living that way and who am I to say they are wrong?

Having said that, I wouldn’t want to live that way. I prefer a bit more security. And I enjoy the balance increasing over time. It’s like dreaming about winning the lotto, but way better since it’s real. At least until that 50% market drop!

I’ll probably save too much and with WFH, it’s a lot easier to continue working. I’m not there yet, but I suspect I’ll have a strong case of OMY syndrome.

 

[Midpack]

Not really, as YOU can't predict which line (or a new one) YOU'll be on for your retirement.

You can only know if you saved too much/little at the end of your plan, not the beginning.

Asking here is fine, but I wouldn't put much stock in the answers - some will be ill advised or just not applicable to your case.

In the end YOU decide how much risk/cushion YOU can live with and pull the trigger.

 

[CincyDave]

OP - Consider contributing to Roth accounts, as this is the one regret I have, not funding Roth's until pretty late.
Decades of compounding and all tax free is pretty sweet.

Ditto! I went for the immediate tax break with TIRAs but in hindsight wish I would have done more with ROTHs.

 

[Time2]

Ditto! I went for the immediate tax break with TIRAs but in hindsight wish I would have done more with ROTHs.

Yep, I did it backwards, took the tax break when I was in a low tax bracket and when I retire my IRA withdrawals will be in a higher tax bracket.

 

[oiseux]

As others have repeated, you are young and anything can happen in 26 years. Keep on your path and perhaps look again at this question in 10 years. An yes, contribute to Roths while they exist and you are still eligible.


However, I will disagree with the rest. If your spouses' health problems are expected to be more problematic in the future, consider spending *some* money on experiences that require good health (or kids at the right age) to enjoy at their fullest. You are already committed to working to 57, you are on pace, and you have time to course correct.

 

[pdxgal]

Here's an article that discusses the issues I mentioned behind why the 4% rule may not apply going forward.

https://www.barrons.com/articles/retirement-withdrawal-strategy-4-percent-rule-51639177201

 

[tulak]

Here's an article that discusses the issues I mentioned behind why the 4% rule may not apply going forward.



https://www.barrons.com/articles/retirement-withdrawal-strategy-4-percent-rule-51639177201

I’ve seen articles like this for over a decade. The reality is that nobody knows and it’s best to be flexible in your planning.

 

[teetee]

All the more reasons to save.

You can always spend down to zero. Charity giving is a thing you know.

 

[Oakster]

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 have not read all the responses, but like your plan, I paid off my truck and house instead of investing. After the fact, I regret doing that. I like have everything paid off, but over that same 8 year period, the stock market was on fire. I love being debt free, but I wish I had invested that money into good growth mutual funds, and then, when I had the money from investments to pay off the house, do it. Take advantage of the stock market growth to help pay off the mortgage. I would pay off all debts as quickly as possibly except the house. Keep investing some money in the market to pay of the house, and do that when the declining mortgage rate meets the increasing savings rate.

 

[Time2]

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.

Regarding the $96K, after 26 years of inflation at 3% (we can only pray) the buying power is reduced to $43,124. You would need $200,563 to have the same buying power of $96,000 today.
Please don't concern yourself with over saving. You can reevaluate when you are 45 or 50 years old.
Here's the inflation calculator I used.
https://www.buyupside.com/calculators/inflationjan08.htm

 

[NoEZmoney]

Sounds like you've got a great plan in place. But to address your question about possibly saving too much, there are those who have different takes on the subject. One would be to figure out what your investment benchmarks might be say in 15, 20, 25 year increments. Some folks will actually cut back on their saving / investing if their portfolios reach certain thresholds / goals.

This way they can relax a bit and use the money they would otherwise invest into a real-time use (like vacation, improving home, etc.) I know a few who have done that so they can travel and do those "bucket list" experiences while they're still fit enough to enjoy those things.

And think about your tax brackets when you get older. My brother saved, saved, saved and he didn't do any Roth rollovers so he's got RMD's that are irritating him greatly. (I tell him it's better to have a income tax problem than an income problem, so it's all good. But he's still steamed as his portfolios keep climbing which increases the annual RMD's and tax liability).

You got your "Go-Go" years, your "Go-Slow" and "No-Go" years down the road. So maybe plan your savings for reaching certain goals and adjust. It's not a bad plan really because as someone pointed out earlier $2.4 mil in 2047 is going to be affected by inflation. Maybe use some of that green while it's got more value before you reach 57. Just a thought.

Best of Luck

"People don't plan to fail, they fail to plan!"

 

[cpaBJB]

Are you currently spending more or less than 4% of your net worth? If the answer is less, than I would say spend a little more and enjoy what you've built up.

But most people are still spending over that amount, so it doesn't hurt to keep saving. For myself, once the retirement accounts hit over $1M, I scaled it back a little and started putting more savings into places I can access if needed.

 

[J277]

Wow this wealth of information from you all has been great. I really appreciate getting the opportunity to hear so many different opinions and plans of attack that I hadn't thought too much about. One thing I will say even though I doubt this will make much of a difference is the main reason I was considering paying off the mortgage immediately after the truck is because of the fact that it would be done within 4 years assuming no increases in salary for myself and also not including my GFs current income as we are not married and don't mix our finances. Although I have been helping her get started with a Roth IRA and getting her 401k max from her employer as well as keeping her out of debt.

The recommendation of me switching to a Roth TSP is tempting but I'm close to the point where if I stop doing a traditional TSP it will change my MAGI enough to make me ineligible for a Roth IRA. That combined with the current attack on the backdoor roth conversion makes me weary of doing a Roth TSP. In the end I understand these are good problems to have and I'm grateful for them.

Also I do like how you all keep pointing out that I have a long time to go. Which is true and I can always adjust my plan as necessary.

 

[Skitso999]

26 years later your 2.4 million will be worth closer to $1m today's money.

Your worry should be on the opposite end.

What happens to your income, if you have half of your 2.4 million in a bond fund, and half in a stock index fund. I believe you'll be concerned about not having enough money! This 50/50 split would be considered a pretty typical asset allocation.

Save your money now, I think you'll need it in the future.

 

[maestro]

I was in your same shoes in my early 30's, but didn't have such a fine, detailed plan as you, although I had a solid plan for retirement savings, children's education, paying off mortgage very early, saving 20% minimum, no debt, etc. Then 25 years of marriage later, 3 children, 'ex' files for divorce. S$!+ happens in life to change the best of plans. It's called 'life'. Been retired now 3 years at 65 this Friday, and still loving retirement life. Don't get me wrong, I totally admire your vigor in preparing, but just enjoy your youth now, and love of having a job, and providing for those you love. Let life happen in the shoes your walking in today. Wish you the best. "Many plans are in a man’s heart, but the purpose of the LORD will prevail." - Proverbs 19:21.

 

[Skitso999]

Yep, I did it backwards, took the tax break when I was in a low tax bracket and when I retire my IRA withdrawals will be in a higher tax bracket.

I'm still not a fan of the Roth's. I used the calculator on this website to compare, and I still get more using the Traditional IRA after I retire, even after taxes.
https://www.free-online-calculator-use.com/roth-vs-traditional-ira-calculator.html

Try it yourself.

 

[yclipse]

I am four years away from age 72. I may have saved too much, but I would rather have that "problem" than the opposite. My plan: if my RMD in a given year exceeds our needs, I can divert some of it to identified charitable uses. That much of the RMDs will escape being taxed, with that plan.

 

[sroby2020]

Although your debt is manageable, as long as you are paying off debt, that money is not working for you. I became debt free in my early 30's and never looked back.

 

[Time2]

I'm still not a fan of the Roth's. I used the calculator on this website to compare, and I still get more using the Traditional IRA after I retire, even after taxes.
https://www.free-online-calculator-use.com/roth-vs-traditional-ira-calculator.html

Try it yourself.

I did!
My input was bogus but I think still valid.
$7000 in a year, current age 30, retire age 66, 9% growth, current marginal tax rate 12%, future tax rate 22%. Might be higher!

It says, "Based on your entered assumptions, a Roth IRA may be worth $229,843.64 more than a Traditional IRA."
We are a bit odd in that we were low income but big savers, always in a lower tax bracket, but when we hit 72, SS and RMDs plus dividends we, will definitely be in the 22% if not the 24% tax bracket, and that's making what I think is the wrong assumption that tax rates won't rise.