Am I Saving Too Much??

[FIRE55]

Hi! The goal is to retire at 55.

DW and I are 41 years old with 2 grade schoolers.

$200k - Approx Annual income
$50k - Positive cash flow annually from Rentals

Pension at retirement for us will be approx 120K annually. Health Insurance will be covered 100% when I retire.

We are currently maxing out all retirement accounts and plan on doing so for the foreseeable future.

$74k - (2 - 457s, roth 401k, & roth 403b)
$11k - ROTH IRAs

Annual expenses approx $50-60K. No Debt aside from home mortgage and rental properties.

Net worth is approx $2.5mil

$710k - Roth Accounts
$370k - 457
$190K - Pension Cash value
$90K - Stocks
$110k - Cash Accounts
$30k - 529 college savings
$735K - equity of 3 rental properties (value $1mil)
$315K - home equity (value 625k)

Are we saving too much? We are not big spenders and our pension at retirement (if all goes well) will more than cover our annual expenses. Any advice or comments will be appreciated.

 

[Dtail]

Will your pensions be the same amount if you retire earlier than plan?

 

[Aerides]

Hi, and welcome. I don't think anyone can answer your question for you without knowing the following:

Are you happy with your current lifestyle, or does you budget/savings rate mean you forgo every nice thing? Does it mean your kids don't get new clothes or toys and you never go on vacation (in non covid times I mean). If no, you're living comfortably, no complaints, no one feels like they are pinching every penny and solely focused on tomorrow, then your answer is no you're not saving too much.

But if you want to consider retiring earlier, or indulging a little more, you have wiggle room given that pension if nothing else.

 

[Elbata]

Don't know what "too much" is, but with your lifestyle coupled with your income level, it's difficult not to save boatloads of money.

With the virus going on, it's hard to spend money. Problem now (at least with wifey and I) is running out of time and the money just keeps piling up.

 

[skipro33]

I'd say no. Basically you have roughly $2M investments and rentals plus a $120K pension in the future. (I don't count your primary home, college savings or pension's cash value as retirement income). So figure $200,000 a month in 14 years. If inflation is 2%, that will water down that pension some, but your investments should grow enough to cover. Continuing aggressive retirement savings will provide some flexibility for asset allocation; either some funds for more aggressive investment growth, or the more cautious growth to protect your total savings.

 

[jollystomper]

If you enjoy your current lifestyle keep doing what you are doing. A lot can happen in 14 years, particularly when having young children.

One thing we did, as our income went up, we increased our savings rate but also tried to enjoy some of the income increase, just not on things that would tie us down for the long run. Our "rule of thumb" was to sock away 80% of any raise/bonus, and have fun or help others with the remaining 20% (depending on the situation at the time).

 

[DayDreaming]

If you do save too much, then maybe you can retire even sooner. So as long as you don't feel like you're depriving yourself of anything right now, keep saving!

 

[captain3d]

We did similar. Saved 75% of take home when work was great. Thought we were saving too much until we both got laid off the same day (same company). Retired earlier than expected. No regrets.

 

[OldShooter]

... Are we saving too much? ...

“'It's tough to make predictions, especially about the future'” (attributed to Yogi Berra). This is the problem, of course. One or both of you cold lose your job or lose your health. Something expensive could happen to one of the kids. Lots of things could knock you seriously off your plan.

In the Adult-Ed investing course I teach, I throw in "Pop Quiz" slides that try to make an important point in an amusing and hopefully memorable way. Here is one:

You’re 75 years old, healthy, and reviewing your financial situation. Which would you prefer?

A) You find that you’re running out of money.

B) You find that you’ve saved more money than you really need.
​

 

[pjigar]

Hi! The goal is to retire at 55.

DW and I are 41 years old with 2 grade schoolers.

$200k - Approx Annual income
$50k - Positive cash flow annually from Rentals

Pension at retirement for us will be approx 120K annually. Health Insurance will be covered 100% when I retire.

We are currently maxing out all retirement accounts and plan on doing so for the foreseeable future.

$74k - (2 - 457s, roth 401k, & roth 403b)
$11k - ROTH IRAs

Annual expenses approx $50-60K. No Debt aside from home mortgage and rental properties.

Net worth is approx $2.5mil

$710k - Roth Accounts
$370k - 457
$190K - Pension Cash value
$90K - Stocks
$110k - Cash Accounts
$30k - 529 college savings
$735K - equity of 3 rental properties (value $1mil)
$315K - home equity (value 625k)

Are we saving too much? We are not big spenders and our pension at retirement (if all goes well) will more than cover our annual expenses. Any advice or comments will be appreciated.

I am in the similar boat and few years older than you. I am saving little more than you are but I don't have any pension. So the only thing I would chime: If you decide to FIRE before qualifying for the pension then current savings rate trajectory will allow you to do so before 50. But if you are dead set on retiring at 55 with pension then yes, you are saving too much. I like to keep my options open so if you do not feel that you are scarifying current lifestyle then keep saving what you are but on the other hand I also believe in balancing today with tomorrow. So find a happy middle and keep paddling.

 

[pjigar]

We did similar. Saved 75% of take home when work was great. Thought we were saving too much until we both got laid off the same day (same company). Retired earlier than expected. No regrets.

Like!

 

[Bob_Walter]

Are you sure your expenses are correct? Seems low having to pay 4 mortgages.

 

[pjigar]

Are you sure your expenses are correct? Seems low having to pay 4 mortgages.

OP is probably excluding the home mortgage and rental mortgage payments. I personally track my expenses excluding all the mortgages since before FIRE, I will have a paid off house and rental mortgage are covered from rents. Yes, it is mental accounting but it is more realistic for FIRE purpose.

 

[Rustic23]

Aerides +1

If your present life style suffers at the expense of your savings, you are saving too much.

 

[davebarnes]

I would say: not too much, but saving wrong.
Download the FAFSA and CSS profile and figure out how to have zero visible assets and zero income when your oldest child is a sophomore/junior.
I personally think that 529s are the worst deal out there. Krugerrands are better.

 

[OldShooter]

... I personally think that 529s are the worst deal out there. Krugerrands are better.

A 529 is just a wrapper for an investment account, not a "deal" at all. No different than an IRA. DW manages 529s for the grandkids; they are invested in Vanguard index funds. She is using the Iowa 529 program because the VG funds are available.

Not interested in reigniting the gold debate here. Not interested in Krugerrands, either.

 

[ivinsfan]

Are you in the military? Otherwise your pension and HC benefits are pretty much a WAG...

 

[HI Bill]

Are we saving too much? We are not big spenders and our pension at retirement (if all goes well) will more than cover our annual expenses. Any advice or comments will be appreciated.

Welcome! If your pension at retirement really does cover your expenses, and you've got college covered, and there's no chance of your pension failing or being reduced, and your health insurance is covered, AND you have a positive $50K cash flow from your rentals, then I'd just focus now on paying off the debt, getting the 401(k) match, and saving for whatever toys, hobbies, or homes you're going to want at ER. If your pension kicks in at 55, you won't have to bridge the gap between 55 and 59.5, so your minimal funds in taxable accounts won't be a big deal. Congrats! You can start living a little larger, based on what I've read, or you can set up house funds for your kids...or give to charities...or buy Krugerands or bitcoin (maybe not the Bitcoin)!

My only concern is the security of your jobs. If they're near 100% secure, then free up the spending. If there's any chance of job loss, I'd keep up the high savings rate. I started with a desired spending rate of just $75K, but then decided I wanted a house and to travel more...so the nest egg had to be much larger, and the budget went up to $130K. Life, desires, needs, and wants change. Saving extra gives you more flexibility!

 

[FIRE55]

Will your pensions be the same amount if you retire earlier than plan?

I'lll get 54% of final salary @55, percentage increases the longer I stay.

 

[FIRE55]

If you do save too much, then maybe you can retire even sooner. So as long as you don't feel like you're depriving yourself of anything right now, keep saving!

We don't feel like we are depriving ourselves. We usually go on 1-2 vacations a year using saved up credit card/hotel/airline points.

 

[FIRE55]

I am in the similar boat and few years older than you. I am saving little more than you are but I don't have any pension. So the only thing I would chime: If you decide to FIRE before qualifying for the pension then current savings rate trajectory will allow you to do so before 50. But if you are dead set on retiring at 55 with pension then yes, you are saving too much. I like to keep my options open so if you do not feel that you are scarifying current lifestyle then keep saving what you are but on the other hand I also believe in balancing today with tomorrow. So find a happy middle and keep paddling.

Thanks for the encouragement! We're pretty much dead set at 55. I'll get 56% of my final pay, plus adjustment for inflation and fully covered lifetime medical. The percentage increases the longer I stay, but at this point, don't think its worth it. We're not sacrificing anything, but we hold back on splurging on lavish things. Vacation are mostly covered through points earned from work travels.

 

[FIRE55]

OP is probably excluding the home mortgage and rental mortgage payments. I personally track my expenses excluding all the mortgages since before FIRE, I will have a paid off house and rental mortgage are covered from rents. Yes, it is mental accounting but it is more realistic for FIRE purpose.

yeah, excluded mortgages. I generate positive income on the rentals, plus everything is set to be paid off by the time I retire.

 

[FIRE55]

Welcome! If your pension at retirement really does cover your expenses, and you've got college covered, and there's no chance of your pension failing or being reduced, and your health insurance is covered, AND you have a positive $50K cash flow from your rentals, then I'd just focus now on paying off the debt, getting the 401(k) match, and saving for whatever toys, hobbies, or homes you're going to want at ER. If your pension kicks in at 55, you won't have to bridge the gap between 55 and 59.5, so your minimal funds in taxable accounts won't be a big deal. Congrats! You can start living a little larger, based on what I've read, or you can set up house funds for your kids...or give to charities...or buy Krugerands or bitcoin (maybe not the Bitcoin)!

My only concern is the security of your jobs. If they're near 100% secure, then free up the spending. If there's any chance of job loss, I'd keep up the high savings rate. I started with a desired spending rate of just $75K, but then decided I wanted a house and to travel more...so the nest egg had to be much larger, and the budget went up to $130K. Life, desires, needs, and wants change. Saving extra gives you more flexibility!

Very low chance of layoff. Not considering paying off debt because interest rates on all our properties are below 4%.

 

[leftbucket]

Calpers?

Are you in the military? Otherwise your pension and HC benefits are pretty much a WAG...

CALPERS (this is a guess based on your location) is presently about 60-70% funded. If this is your plan, I would cut your retirement pension projections by about 1/3 and continue to monitor closely. In the same vein, I would plan on losing ~1/2 of that paid for healthcare through some changes. OPEB cuts or surcharges of some kind are coming.

Hopefully, none of these changes happen, but you need to plan for them.

All the best,

LB

 

[pacergal]

Looks like you are doing well.
You could probably splurge every once in a while if you want. Also, kids expenses do go up as they get older-especially high school; sports, clubs, activities, etc.