Am I Saving Too Much for Retirement?

While many individuals may not be putting away enough in their nest egg, the flipside could also be true. “It’s hard to think of the possibility of saving too much, but diligent savers and investors are sometimes able to reach their savings goals prior to their actual retirement date,” says Kali Hassinger, a certified financial planner at the Center for Financial Planning, Inc. in Southfield, Michigan. After reaching their goals, super savers may go above and beyond the amount needed to carry out their lifestyle as retirees.

While saving too much isn’t necessarily a negative habit, it can be helpful to understand where you stand with your level of savings. “There are rules of thumb about how much of your income you should save, but there is no one-size-fits-all savings total or threshold,” Hassinger says. The amount you need is based on the expenses you will have during retirement, including activities you want to carry out like traveling or purchasing a home. It will also depend on the return rates you receive from your savings and investments.

Use the following signs to determine if you’re saving too much for retirement:

You’re Unable to Cover Basic Living Expenses

While saving for the future is important, sometimes it can grow to a point of forfeiting life essentials in the meantime. “If you deprive yourself of medical attention to save out-of-pocket expenses, it’s probably a bad thing,” says Dennis Pellegrini, an investment advisor representative in Wyomissing, Pennsylvania. The same is true for other basics like gas, food and a mortgage or rent payment. If you’re sacrificing these essentials but padding a retirement account, that’s a red flag. You might consider readjusting your budget and shifting some monthly income toward paying for day-to-day living or moving to a less expensive place to bring down overall living expenses.

You Have Too Much Debt

If you’re determined to save for the future, but are putting funds into investment accounts rather than paying off debt, you could end up paying more in interest and fees than you are earning on your investments. “I’ve had clients that have had too much in high interest-bearing credit cards, but the client’s focus is on saving and investing rather than reducing that excessive burden,” says Jeffrey Wood, a certified public accountant and partner at Lift Financial in South Jordan, Utah. As a result, they could be spending a large portion of their income on interest expenses and carrying the debt into retirement. “They need to take control back in their lives first and then focus on saving and investing for the future,” Wood says.

You Have No Financial Plan

Without any indication of what you’ll need during retirement and how you plan to withdraw from your accounts, you might end up setting aside much more money than you can use. To make a retirement plan, you can sit down with a financial advisor to discuss the factors involved. The plan will “depend on your Social Security income, your current retirement portfolio value, your future retirement investment return, your initial withdrawal amount and your annual withdrawal increase to cover inflation,” says Tenpao Lee, a professor of economics at Niagara University in Niagara University, New York. For example, say your retirement portfolio is $1,000,000 and your average investment return is 5% per year. You start by withdrawing 5%, or $50,000, and then each year you increase your withdrawal percentage by 2%. In this case, “your portfolio will last for 28 years,” Lee says. In addition to these amounts, you can estimate what your Social Security benefit will be during retirement.

You Have Excess Funds

After creating a retirement plan, you may find out you need less money for retirement than you have accumulated. This extra amount could be very beneficial for covering unexpected expenses. “Unknown personal emergency expenses during retirement range from home maintenance needs to health care expenses and everything in between,” says Melody Juge, founder of Life Income Management, with offices in California and North Carolina.

Those additional funds could also be passed on to heirs. “For those who have amassed substantial savings and assets that may not be needed during their lifetime, this is money and assets used for gifting,” Juge says. In addition to family members, you might contribute to charities or other nonprofit organizations.

You Bypass Meaningful Opportunities

If you can afford to make a long-awaited purchase without it impacting your level of long-term savings, but pass on the chance, you might be putting away too much. “Have you put off a lifelong dream that is financially reasonable because it may slightly affect your retirement goals?” Wood says. “Are you so focused on saving money that it prevents you from making important memories with the ones that matter most?” If your savings habits are causing a strain in your relationships or leading you to miss important family events, it could be time to reevaluate your plan.