stated at the end of the article, it is difficult to predict whatunknown expenses you may fact when you reach retirement especially inregard to health care costs. When looking at it in this way, it'seasy to argue that you can never save too much. However, I do thinkeach person has to find a balance between saving and spending. Aperson has to have some "fun money" to maintain a healthy lifestyle.If I had a choice though, i'd err on the side of saving more notless. Thoughts?
As stated at the end of the article, it is difficult to predict what> unknown expenses you may fact when you reach retirement especially in> regard to health care costs. When looking at it in this way, it's> easy to argue that you can never save too much. > Josh
Given the articles we all read, "the savings rate in the US is below x%", "only X% of 40 yr olds have begun to save for retirement", etc, it seems to me that Mr. Kotlikoff's article is dangerous. Those who save obsessively will continue to do so, and the undersavers will cite his article as 'proof' there's no need to panic. As with any situation, there is a bell curve. There current exists some small fraction of people who will actually have too much money saved up. Too bad for them (that they might have 'enjoyed life' more). Let's not miss the fact that his writings promote a product he is selling, ESPlanner, at $149 for the home version. I am guilty of oversaving, pushing 25-30% when we can. When I can comfortably replace my income through investments, it's time to retire. Maybe it'll be when I'm 50 or 55 instead of 62. Better that, than to find myself 62 and 'needing a few more years' to make up for what I should have saved.
You never know what the future is going to bring you.
You might end up disabled or sick and not able to work in your normal profession. If that is the case, you might suddenly lose your ability to save for retirement. Like the farmers say, make hay while the sun shines.
At the same time, if something does happen, you don't want to end up home bound or bedridden, and not having had a chance to do the things in life that you dreamed about as a youth.
As a result, the retirement savings question is a matter of balance, and that balance point is going to be different for each person. Do what you are comfortable with.
I don't know or care what it is like for the "average american". I'm 43 and my wife is 45, and our net worth is less than zero. I'm worried about my own problems.
Your net worth may be negative, but depending on your age, you can be OK. You might have a big mortgage, say, which means your 'gross' assets are a reasonable number, even if your net assets are not. And you might have a significant employer pension scheme which is an asset in and of itself.
If you are on track to pay off your house by your late 50s, and you are making regular contributions to a 401k or other retirement vehicle (or you are in a good employer sponsored defined benefit pension plan) then your gross wealth has a good chance of getting there.
This is if you are in your early 40s, say, and much of your cash flow is going into equity investments.
The big issues for most in such a situation are:
- eeking out a bit more cash flow, to pay off non-house related consumer debt, This means taking a hard look at where the pennies go. $50/month can make a big difference to how much interest you pay on the life of a loan (and to the size of your retirement portfolio, once you start investing).
- making sure there are regular contributions to a retirement savings vehicle, and that those are invested in low-cost equity (stock) mutual funds. When you have paid off any non-mortgage debt, that is the place to turn the extra cash flow.
I fear that this concept of "balance" will prove elusive. My experience is that I have never encountered a retiree who complained of having saved too much.
Instead, I see retirees at all income and net worth levels concerned about lengthening life spans and a host of other unknowns: inflation, future illnesses, long-term care, family emergencies (not only retiree and spouse, but children and grandchildren) and so forth.
Generally, I believe I am correct in saying that 80% of all non-house financial assets are held by 10% of Americans. So stripping out Americans who have good defined benefit pension schemes (increasingly only those in the public sector) and are likely to be with their employer to retirement (ditto) then I would say that even if Americans, in aggregate, have enough savings, most don't or won't.
As stated at the end of the article, it is difficult to predict what> unknown expenses you may fact when you reach retirement especially in> regard to health care costs. When looking at it in this way, it's> easy to argue that you can never save too much. However, I do think> each person has to find a balance between saving and spending. A> person has to have some "fun money" to maintain a healthy lifestyle.> If I had a choice though, i'd err on the side of saving more not > less. Thoughts?>
May be this guy is right that Americans are saving too much for retirement and many big financial companies want us to save more because that helps their bottom line. I heard Dr. Kotlikoff's interview on NPR and he said retirement is a luxury and if you cannot pay for that luxury then keep working till the end of the day. He cited he moms example who was 80 something and was still working part- time.
But for me I dont want to be working if I ever reach 80. Infact I push my savings to upto 30% a year so that atleast I have a choice to retire at 55 or 60 at the latest. So I disagree with Dr.Kotlikoff and I feel Americans should keep saving even if it is sometimes is at the expense of having fun now because its a whole different feeling to have a choice between working and retiring at 55. So keep saving....
Understood, certainly, for you or anyone w/the same feelings.
I do meet people who enjoy their work, find their jobs not constantly stressful but instead satisfying. They feel they are making a contribution, and this is a "luxury" they enjoy. They foresee that feeling diminishing if they retire. Hats off to them. But also hats off to those who find their jobs a path to burnout (with, say, the stress-related physical maladies to match); yet have saved earnestly for years; and then said, "I could be happier. Life is short. I have enough money. I resign from the workforce (or that part of it I found exhausting)."
I agree it's about trying to ensure one has the choice to retire. Money in the proverbial bank is peace of mind.
As stated at the end of the article, it is difficult to predict what> unknown expenses you may fact when you reach retirement especially in> regard to health care costs. When looking at it in this way, it's> easy to argue that you can never save too much. However, I do think> each person has to find a balance between saving and spending. A> person has to have some "fun money" to maintain a healthy lifestyle.> If I had a choice though, i'd err on the side of saving more not > less. Thoughts?>
The question is not, as stated in your subject line, whether someone is saving "too much for retirement". The question is how do we balance the need to save for future retirement with our current need to lead a comfortable life. The extremes are people who spend now and not have enough for retirement, and the people who save now and then when they retire, finds out that they have the money but don't have a life.
But I have met plenty of retirees who complained about opportunities lose, about the trip to Italia they did not take, about the visit with grandparents that was not made, etc.
But this is no different than any choices one makes when it comes to spending. In theory, if one fixes all other variables, (income, rate of savings, rate of return, date of retirement) you can choose between the Italy trip today, or ~$50/month in retirement. But there are too many unknowns. I lectured my first client nearly 20 years ago, woman in her mid 20's, about saving 10% minimum. She claimed she 'couldn't think that far out' (for retirement). She found herself unable to work in her early
40's but with nearly $250K in her 401(k), is drawing $10K/yr plus worker's comp. Had she read the story cited here, she may have lowered her savings and over-calculated her social security. Regardless of income, visit the grandparents, and call mom every week. JOE
Okay, some of that was a little harsh. Reality, but still.
Nevertheless, and mostly regardless of how they got there (only mostly - there are elements of the past which may affect the future) - the real questions now are what to do about this unfortunate situation.
Sadly, the fact is that these folks are far from alone. At least this guy is here. That's a start.
Perhaps Daniel will tell us more about his current situation - income, expenses, debts, assets (just 'net worth less than zero' isn't really enough for providing any useful advice). And we can come up with a plan.
The normal basics, of course, generally apply - max out retirement plan options, spend less than you earn, put some savings aside beside that, pay off high-rate debt, etc. But maybe there's more specific advice we can come up with for these folks.
> As stated at the end of the article, it is difficult to predict what>> unknown expenses you may fact when you reach retirement especially in>> regard to health care costs. When looking at it in this way, it's>> easy to argue that you can never save too much. However, I do think>> each person has to find a balance between saving and spending. A>> person has to have some "fun money" to maintain a healthy lifestyle.>> If I had a choice though, i'd err on the side of saving more not >> less. Thoughts?>>
But it will probably be easier for those who saved to "get a life" in retirement than it will be for those who consumed to "get a secure future" after they quit working. Dwight
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Indeed. Interestingly (and perhaps disturbingly), under certain scenarios, Kotlikoff's methodology will recommend living above your means, and financing your lifestyle. Remember that he's all about consumption smoothing - you want to live at about the same lifestyle all your life. So if you're in an earnings lull (or maybe even at the beginning of your career), then just borrow money and live it up. You'll pay that money back when you're making more money later. Yikes!
> As stated at the end of the article, it is difficult to predict what>> unknown expenses you may fact when you reach retirement especially in>> regard to health care costs. When looking at it in this way, it's>> easy to argue that you can never save too much. However, I do think>> each person has to find a balance between saving and spending. A>> person has to have some "fun money" to maintain a healthy lifestyle.>> If I had a choice though, i'd err on the side of saving more not >> less. Thoughts?>>
What you fail to mention is the really big variable, HEALTH. I talk to people every day that saved for retirement by not going on vacations they wanted or buying the car they wanted, only to be afflicted with an illness that prevents these things now.
Even worse is saving, saving, saving, and losing your mate. One must have balance in these things. If you want that Latte and can afford it, go for it. Thumper
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