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Is It Possible You Are Saving Too Much for Retirement?

by Jeremy Holcombe

Save, save, save. Save as much as we can toward retirement. Bite the bullet now, in order to enjoy the latter years of life.

While it is important to save plenty for retirement to insure yourself the life you want, is it possible you are saving too much for retirement?

Morningstar Investment recently ran a report claiming that the conventional retirement planning wisdom may overstate how much Americans need to save by as much as 20%. This is a huge number, as 20% over time can equal thousand upon thousands of dollars. All of that money that you could be using to enjoy a better life now may wasted as extra retirement funding that is not needed.

“There are three common assumptions that many software tools and financial advisors use to come up with a retirement savings goal,” said David Blanchett, head of retirement research for Morningstar Investment Management. “When we looked at actual retiree spending patterns and life expectancy, however, we find that these assumptions don’t hold true for many people and, on average, can significantly overestimate how much people will actually need to fund their retirement.”

According to CBS Money Watch, retirement experts estimate that Americans need 70–80% of their working wages to live in comfort once they retire. They also assume that retiree expenses will continue to rise with inflation. However, Blanchett’s analysis found that some retirees can live quite comfortably on 54% of their working income, and that inflation has a much more muted impact on retiree spending.

This isn’t to say that you need to stop saving all that extra income toward retirement. However, if you find that is a bit hard to live right now, then check out the study and look into what you can do for your financial situation now by cutting back some as far as retirement savings.

Article Sources: CBS Money Watch | Morningstar Investment

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