When it comes to retirement, you can’t save enough money – until you do.
Saving for a post-work world is now a near-universal ideal: 50-something workers worried about their nest eggs have been joined by younger workers, who during the pandemic got a taste of new work arrangements and the promise of life outside office.
It’s still true that most Americans aren’t saving enough for retirement, according to a recent Vanguard report. But saving to meet sometimes unrealistic — or unnecessary — goals in retirement could be at the expense of a life well lived today.
As with many things financially, a measured approach is critical. Here are the top signs you might be overdoing your savings.
Sign 1: Your plan lacks clarity
From a distance, vowing to go wherever life leads—a new boat, a house by the water, even #vanlife—seems romantic. But without some sense of what you want for your life after work, it can be hard to know what you can afford versus how much money you’ll actually need.
Many investment experts suggest that you should budget about 80% of your current salary each year to maintain your current lifestyle. Will you retire completely or work to pay some bills? If you are fully withdrawing, you must first achieve your full goal.
Also consider future housing options. Are you planning to age in place or downsize to a downtown apartment or independent living?
Sign 2: You need a 401(k) rollover.
Employer 401(k) accounts remain the primary retirement investment vehicle for millions of Americans. In 2022, workers under 50 can contribute a maximum of $20,500 to their plan annually. If you’re over 50, that jumps to $27,000.
Do you still have money to save? Consider a Roth IRA, which uses after-tax contributions to pay tax-free in retirement. However, contributions are $6,000 for younger workers and $7,000 for those over 50.
If your goal with any remaining cash is to simplify your investments, you may want to consider equity plays such as stocks or mutual funds. Just keep in mind that you will be taxed on the profits.
Sign 3: You fall short of other money goals
do you owe Check how much you’re saving compared to paying off obligations like car loans, your mortgage and so on. If you’re contributing an amount that will put you over your retirement goal, eliminate debt — especially high-interest credit cards and personal loans — before contributing to investment accounts.
Interest on debt will eventually eat into your savings and potentially cause stress that can contribute to health and relationship issues. Nearly half of couples with $50,000 or more in consumer debt say money is the main reason they argue, according to a study by Ramsey Solutions.
Putting it all together: strive for balance
If you want to know if you’ll have everything you need to live the life you want, consider the balance of your life as you balance the numbers.
Will you retire completely or work a little? Combining Social Security with retirement and other assets, will you have enough, too much or too little? A common rule of thumb is to stick to the 4% rule for withdrawals, but it’s always best to consult a financial advisor to design a plan that meets your specific needs.
Finally, do you find yourself putting off some short-term goals like taking a well-earned vacation or just hanging out at a restaurant with friends? While you may overspend on today’s luxuries, there is value in enjoying your life now by spending as much as possible.
Of course, avoid confusing “wants” with “needs,” and when buying important things like health or medical care, be sure to avoid contributing too liberally to retirement accounts.
But remember: Satisfying short-term goals and deep-seated desires can be just as important as making your long-term retirement plans.
If you want to take a budget trip or an adventure you’ve been waiting years to embark on, consider doing it now instead of hoping your health will allow it later.
Yes, you’ll be spending — but you’ll also be investing in your happiness and earning money for your dreams.
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This article provides information only and should not be construed as advice. Provided without warranty of any kind.