Ask Money

Saving too much

Chris Farrell Dec 11, 2009

Question: I was brought up by parents who remembered the Depression, and they taught me frugality. I also got my first job in the early 80’s when folks first started talking about whether Social Security would survive another 50 years. So I started saving for retirement early.

I have been saving a significant portion of each paycheck since I began my working life. I am now 47 years old, single, no children. My only debt is about $40K remaining on my mortgage. My annual salary is about $55K. My retirement savings (IRAs, 401k, 403b, and 457) total about $300,000.

I am currently a state employee, so I am in one of the few remaining defined-benefit plans, for which 6% of my pay is deducted each month.

I am also enrolled in the state’s optional 401k, 403b, and 457 plans (both Roth and traditional versions) and currently have 30% of my salary going into those plans each month (no employer match on any of these). I also fund a Roth IRA to the maximum amount each year.

My plan had always been to save a lot early, taking advantage of time to make my retirement savings grow and ease up on retirement savings as I got older. However, the last decade has seen my investments decline so much that I never felt that it was time to reduce my savings rate.

How do I know when and how much I can reduce my retirement savings? I live fairly comfortably while maintaining that savings rate, but it sure would be nice to have more than the 1/3 of my salary that is left to live on after retirement contributions, insurance, and taxes. Thanks, Mark, Durham, NC

Answer: It’s sometimes hard to believe that in our society where most people struggle with spending too much and saving too little that some people may set aside more money than they need to. Looking at the numbers you sent in and the tone of your question I don’t think you’re enjoying your money enough. The 15th century French poet Charles D’Orleans wisely wrote, “It’s very well to be thrifty, but don’t amass a hoard of regrets.”

Of course, there is no way of really knowing how much is enough to fund a lifestyle let alone pay for future medical bills during retirement. Still, most people should find themselves in decent financial circumstances with room for maneuver late in life by following some basic savings strategies and taking a broad perspective on investment. Most importantly, by carefully thinking through “What really matters to me?” future retirees can devise sensible answers to the question “How much is enough?” A book that I like for inspiring thoughts along these lines is Ralph Warner’s Get A Life: You Don’t Need a Million to Retire Well. Warner is the founder of, the legal self-help organization.

Let’s look at some rule-of-thumb numbers to see how you’re doing. Brett Hammond is the chief investment strategist at TIAA-CREF. He devised a simple calculation. It starts with the basic idea that people need at least 70% of their income during their working years to live comfortably in retirement. He estimates 60% of the average retirees pre-retirement income will come from your 401(k)-type accounts. The rest gets filled in with Social Security and other assets. He crunches some numbers, and if your 35 and plan to retire at 65, you’ll need 2.1 times your salary; at age 45, multiply by 3.6 times; and at age 55 it’s 5.4 times. So, by this calculus you’re well ahead. A good plan would be to have accumulated $200,000 in 401(k)s, IRAs and the like and you’ve set aside $300,000.

You can read about Hammond’s system here. Henry Hebeler has a comparable rule-of-thumb system at his website The article is “Are your retirement savings on track?” I think the answer for you is, Yes.

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