Can You Save Too Much for Retirement?

With all the advice you hear about saving money for retirement, maybe you’ve decided to save as much as you can for as long as you can. But believe it or not, it may be possible to save too much for retirement. 

In fact, you might be complicating your life today by saving too much for tomorrow. Read on to learn how to strike the right balance. To work with a professional to help plan your retirement, speak to Farm Bureau.

How Much Is Too Much?

The amount you should save for retirement depends on your age, financial situation, plans for retirement and other factors. Many professionals recommend savings targets based on your age:

• Age 30: 1X your salary
• Age 40: 3X your salary
• Age 50: 6X your salary
• Age 60: 8X your salary
• Age 67: 10X your salary

If you’re ahead of those targets, you could have more money than you’ll need during retirement. It might be a good idea to look at your overall financial plan so you can evaluate whether saving for retirement is the best use of your money.

Why You Could Be Saving Too Much for Retirement

You might be oversaving for retirement if:

• You’re overestimating the income you’ll need when you’re retired. This amount is called the replacement rate, and general advice says you’ll need 75% of the income you had when you were working. However, replacement rates are highly dependent on your circumstances and could be lower. You may need less than you think. 
• You’re following advice from generic online planners. It’s easy to enter your age, income and savings into a form, answer a few questions and see a number pop up. But that number doesn’t factor in specific details about your life.
• You’re overestimating housing costs. If you’re living in a large home with a family, downsizing for retirement might mean your housing costs are a lot lower than they are currently. Your mortgage might be paid off, and costs for maintenance and home improvements could be lower in a smaller space.

Situations Where You Might Be Saving Too Much for Retirement

You might think there’s no downside to saving a lot for retirement. After all, more money gives you a cushion for unexpected expenses, or allows you to leave more to your loved ones or to charity. 

But too much long-term savings could harm you if it would be better financially to:

• Pay off debt. The interest rate on some debt, like credit cards, may be higher than what you earn in your investments. 
• Set up an emergency fund. If you don’t have enough money put away to cover three to six months’ worth of expenses, you may want to make that a priority. If you lose your income for any reason, you’ll need a way to cover those costs.
• Saving for college. If you want to go to school, or that’s a goal you have for your children, you’ll want to strike the right balance between saving for both education and retirement.

Make Sure You’re on the Right Path

If you’re asking yourself, “Am I saving too much for retirement?” reach out to Farm Bureau. Our professionals can review your finances, savings, investments and goals and make sure your money is working as hard for you as it can.