Saving for a post-work world has become a near-universal ideal: the 50-something workers who worry about their nest eggs have been joined by younger workers who experienced new working arrangements and the promise of life outside the office during the pandemic.
According to a recent Vanguard report, most Americans are still not saving nearly enough for retirement. However, saving to meet sometimes unrealistic or unnecessary retirement goals may come at the expense of a life well-lived.
A cautious approach is essential in many financial situations. Here are the top warning signs that you’re over saving.
Sign 1: Your strategy is unclear.
From afar, vowing to go wherever life takes you — a new boat, a waterfront home, even #vanlife — appears romantic. However, without a clear vision of your post-work life, it can be challenging to determine what you can afford versus how much money you’ll require.
Many investment experts recommend that you budget approximately 80% of your current salary yearly to maintain your current lifestyle. Will you completely retire or work to pay your bills? If you want to retire completely, you must first reach your goal.
Think about your future housing options as well. Do you intend to age in place, downsize to a downtown apartment, or live independently?
Sign 2: You need to review your 401(k).
Employer-sponsored 401(k) plans enable millions of Americans to save as a primary retirement investment vehicle. For workers under 50, the maximum contribution is $20,500 to their plan; if you’re over 50, the figure rises to $27,000.
Do you still have money to save? Consider a Roth IRA, which uses after-tax contributions to provide tax-free distributions in retirement. Contributions, however, are capped at $6,000 for younger workers and $7,000 for those over 50.
If you want to simplify your investments with any remaining cash, consider straight-up equity plays like stocks or mutual funds. Just keep in mind that your earnings will be taxed.
Sign 3: You’re falling short on other financial objectives.
Do you owe money? Check how much you save versus how much you pay off debts like car loans and mortgages. If you’re contributing more than your retirement goal requires, you should use the extra money to pay down debt first, especially high-interest credit cards and personal loans, before putting money into investment accounts.
Debt interest will eventually eat away at your savings and may cause stress, leading to health and relationship problems. According to a Ramsey Solutions study, nearly half of couples with $50,000 or more in consumer debt say money is a significant source of conflict.
Putting everything together: strive for balance.
If you want to know if you’ll have enough to live the life you want, consider balancing your life as you balance the numbers.
Will you retire entirely or work part-time? Will you have enough, too much, or too little when you combine Social Security, retirement, and other assets? The 4% rule is a common rule of thumb for withdrawals, but it’s always best to consult with a financial adviser to design a plan that meets your needs.
Finally, are you putting off short-term goals, such as taking well-deserved vacations or simply socializing with friends at a restaurant? While it is possible to overspend on today’s luxuries, there is value in living in the present by spending within your means.
Of course, avoid confusing “wants” and “needs,” When purchasing essential items such as health or medical care, avoid contributing excessively to retirement accounts.
But remember that achieving short-term goals and deeply held desires can be just as crucial as making long-term retirement plans. If you’ve wanted to take a cheap trip or embark on an adventure for years, consider doing it now rather than hoping your health will allow it later.
Yes, you will spend money, but you should also invest in your happiness and cash in on your dreams.