are you saving too much for retirement?

[SingleMomDreamer]

That's the title of an interesting personal finance article on Yahoo! I've seen a few articles on this very subject over the last month or two. The theme is how the various investment firms want us to continue to invest to better line their pockets. Yet when I read these articles, they never indicate how much we SHOULD invest. I have my own number that I am working on, based on expected expenses, 8-10% return rate, 4% withdrawal rate, and 3.5% inflation. Yet I've got 22 years ahead of me before I turn 65. My plan is to stop funding my 403(b) once I hit my mark and then divert all to taxable investments that can be used to fund an early retirement. How do you set the mark for your retirement investments? At what point is your retirement account "fully loaded"? How did you make this determination?

 

[TromboneAl]

Those silly articles are for people who have no idea how much they spend each year, and haven't researched the topic of how much is necessary.

FIRECalc is a great way to decide.

 

[SingleMomDreamer]

When there's 22 years ahead of me before I plan to withdraw 403(b), and possibly a decade before ER, FIRECalc isn't all that helpful.

 

[chinaco]

I don't know if I am saving too much for retirement... We just have a LBYM lifestyle and don't waste too much money. If I don't spend it I save it .

 

[maddythebeagle]

o boy....not this topic again....I would think folks on this board would know by now....no such thing as saving too much....unless it is making you unhappy that you are denying yourself too much now vs. if you have enough, retire or semi-retire earlier.....

 

[Gumby]

What is the old saw? You can never be too rich or too thin.

 

[Arc]

Saving too much = tremendous flexibilty to do what you want.

Saving to liitle = wishing you had saved too much so you had tremendous flexibiltiy to do what you want.

You pick.

I do agree that you should not deny yourself along the way. Balance is key!

 

[samclem]

When there's 22 years ahead of me before I plan to withdraw 403(b), and possibly a decade before ER, FIRECalc isn't all that helpful.

I didn't break my savings calculations/deliberations into two pots as you've done. I saved as much as possible into tax advantaged accounts (initially conventional IRAs, then Roth IRAs, and now Solo 401Ks) ansd put the rest into taxable accounts. Added everything up. We figured that when the total got to be about 25x the annual withdrawals we would need (pension + annual withdrawals = anticipated expenses) then we'd have enough to retire. Did another calc or two to see if the non-tax-deferred savings would last until we reach 59 1/2 and can withdraw from the tax-deferred accounts without penalty, but this hasn't been a problem (because I'm supplementing with w*rk, and because we can withdraw principal from the Roths if needed, and could do SEPP withdrawals if absolutely necessary).

I think that your approach may be overly complex, and may be making it more difficult than necessary to set your goal.

 

[donheff]

I've got 22 years ahead of me before I turn 65. My plan is to stop funding my 403(b) once I hit my mark and then divert all to taxable investments that can be used to fund an early retirement. How do you set the mark for your retirement investments? At what point is your retirement account "fully loaded"? How did you make this determination?

Why stop funding the 403(b)? Is your tax level so low that you don't get much benefit from the reduction in taxable income? Will your ER income be so high that the taxable rate on the 403(b) will be extremely high? Why not take your calculation for target income and simply save as much as you can (maxed 403 + Roth, + regular savings) to get to your target ASAP?

 

[SingleMomDreamer]

I really see the future in two phases, and hence, two "baskets" that need to fund my ER and R. I feel good about the value of my retirement investments, and I also know that I'm not going to want to dip into the 403(b) before age 65. More psychological than anything. What I'm not comfortable with now is my ER "basket" which needs a hell of a lot of work. So my strategy is to get my 403(b) up to my desired goal, then divert all those 403(b)contributions into taxable investments, like Vanguard index funds. Maybe I am making this too complex, but for now I need to get my emergency savings back up and work harder on my investments outside of 403(b). Perhaps at some point, I'll be able to do it all, but for now, I need to prioritize.

 

[donheff]

I'm sure there are variations that disprove the rule, but for most employees contributing the max to the tax deferred plans is appropriate. The money is off the table income tax wise so for every dollar you save you are saving an extra x% of a dollar depending upon your tax rate. Years later, when you withdraw, you pay regular income tax rates on every dollar - potentially pretty high. But, since you sound like you are struggling to fund one bucket at a time, it doesn't sound like you are expecting to be rich during ER so your regular tax rate probably won't be high. That makes the pre-tax funds even more attractive. If all you end up funding is the pre-tax account you can still tap that without penalty before you are 59 1/2 -- just be careful to follow the correct procedure.

Bottom line -- why the preoccupation with taxable savings?

 

[SteveR]

We balanced our saving-expenses a while back. We spend as much as we want as long as we still save what we agreed on for the month.

Over-saving is only bad when you feel deprived and it becomes an obsession. Saving for FIRE can be done as fast or as slow as you wish. Some see it as a race while others see FIRE as a journey. Speed works for some but not for others. Some can save like crazy without it affecting their life-style or their marriage. Others never get to the saving part and FIRE is only a dream. The middle is somewhere in-between the two extreemes.

 

[Peaceful_Warrior]

The future value of a dollar invested today makes me want to invest as much as I can now as long as my family doesn't feel deprived in any way.

 

[NinjaPigeon]

If I don't spend it I save it .

Heh, that's the same way I think about it. I save just to save. I don't really have a number for ER. But maybe if I was closer, I might I still haven't hit the 100k mark...

 

[SingleMomDreamer]

I think SteveR "hit the nail" on the head when he mentioned that some see ER as a race, others as a journey. I'm definitely one to see it as a race. While it might make sense to keep plowing money into the tax-advantaged 403(b) plan, I don't want to be caught in a position where I am forced to withdraw it, possibly with penalty. I've had rough spots in my life. Hell, ten years ago I had NOTHING and was just getting back on my feet after a couple of years of un- and under-employment. My job now is based on grants that run hot and cold and last for two years at a time, if lucky. I want to be prepared for a downturn in the future without having to "borrow" from the 403(b). So having some decent taxable investments upon which to draw is essential for me. I do feel as if I'm in a race and while I am about to cross the finish line in the 403(b), I haven't even really begun the other race. I guess then, after thinking it through, the quest for the separate ER basket is one of insurance.