Ask Money

Saving Too Much

Chris Farrell Apr 2, 2008

Question: I would like your opinion on the retirement goals set by my investment firm. I’m 54 years old and have no debt at all. My house, car, etc, all paid in full. I have a job I love, making $90k annually plus I still have a small income from a former business – approx $10k annual. My house is worth approx. $340k and I have $350k invested in mutual funds through an advisor (Wachovia – fee based plus commission). I’ve had a miserable history with advisors – this group is my third. I’m currently putting 56% of my job salary into savings, plus I have 401K and a pension through my employer.

The 56% is getting a little tough but my advisor says to be in the “safe range” at retirement, I need to be this aggressive. I don’t know if they are telling me the truth or if they just want me to beef my portfolio so they can charge a higher fee.

I would like a little breathing room and enjoy life a little. I worked hard to get everything in this comfy state but now I can’t even have a small splurge occasionally… Advice? Please? Kate, Charlotte, NC

Answer: You’re savings 56% of your income? No wonder you feel strapped. I’d really loosen the spending reins, and enjoy yourself. Obviously, in an email communication I can’t know all the ins-and-outs of your finances. But by any measure, setting aside 56% of salary in savings is steep. I’m puzzled–no, I don’t understand at all–the advice to save such a large percentage of your income. What am I missing?

Put it this way: The old financial planning advice was to salt away some 10% to 15% of income in savings. In recent years that figure has been upped to 15% to 20%, largely reflecting greater volatility in the markets and higher healthcare costs. But that’s still way below 56%.

I don’t understand the reasoning behind saving any more than 10% to 20% of income unless there is a particular goal in mind. What’s more, unlike most people your age, you don’t have any debt. Let’s not turn the smart idea of saving for tomorrow into meaning little more than hoarding cash and collecting regrets today. Saving to save is just as bad as spending to spend.

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