Financial Planning for Geeks

How Much Saving Is Too Much?

- Investments

We hear a lot about the people who aren’t saving enough toward financial independence, but less about those who might be saving more than they need to.

A color drawing of Muncaster Castle in England, including formal gardens
That's a big 'un.

I was struggling to come up with a topic this month, so I asked a group of friends for ideas during my weekly pub visit. Thanks, Mark, for suggesting this great question: How much saving is too much? We hear a lot about the people who aren’t saving enough toward financial independence, but less about those who might be saving more than they need to.

Let’s start very generally: you may not need to save as much as you thought. Some experts suggest 80% of pre-retirement income as a benchmark level of spending after you stop working…but that’s little more than a guess. A lot of my clients spent 100% of their pre-retirement income, or even more, after they stopped working for money. Some spent less, even half as much, especially if they moved away from the money pit that is the Seattle metropolitan area.

Your costs might go down after you stop working if your mortgage and student loans are paid off or you move somewhere less expensive. The kids might be out of the house (and not boomeranging), and you can stop driving 45 miles to work each day in fancy, dry-cleaned clothing. Once you turn 65, most of your medical costs will/should/might be covered by Medicare. Your costs might go up if you want to travel more or start an expensive hobby, or if you want to move somewhere more expensive.

You also might not have to save enough to cover all of your post-work expenses. You may be one of those rare people who is entitled to a pension. You might get an inheritance or Social Security, or you might decide you’d like to take on a part-time, low-stress job to cover some of your expenses.

The point is that you need to do your financial life planning to figure out YOUR expenses and YOUR sources of income. You won’t know if you’re saving too much unless you know how much you need to save.

Great! You’ve made it this far. As part of your financial life plan, you’ll know how much you’re planning to spend after you stop working, how much income you will have from all sources, and how long you expect to live (uplifting, I know). How much are you currently saving relative to how much you plan to spend over the rest of your lifetime, minus your sources of income? If you continue along your current savings path, will you have more than you need? By how much?

If you’ve discovered that you’re saving more than you will need, have you also taken care of all the risks which could derail your financial life plan? Make sure you can say “yes” to each of these questions:

1. Do you have adequate emergency reserves in cash or other liquid, immediately accessible form?

2. Are you debt-free?

3. Are your insurance needs fully met? This includes health insurance, life insurance, long-term disability insurance if you’re still working, and long-term care insurance.

4. Have you done your estate planning?

If you haven’t checked all of these off the list, what a great way to use some of the extra money you were saving! You may give yourself a pass on being debt-free for a house or car, but it is absolutely critical that you handle all of these risks to protect yourself from life’s curveballs.

But what if you HAVE checked all the risks off your list? How would you feel about cutting back on your savings plan? If you’d feel OK, try it out. Maybe you can redirect that money in one of the ways you see below.

If you don’t feel OK cutting back on savings even though you’re saving more than you will need, read on and think about how you would answer these questions:

1. Are you scrimping on necessities like food, housing, health care, personal care, or clothing? What would your most trusted loved ones say if they answered this question about you? I’m not saying you have to drive a Lamborghini and live in a 40,000-square-foot home. And it’s 100% OK with me if you don’t hop on the Consumerism Train. I support that! I’m just asking if you feel you have good balance here and if you might have a blind spot.

2. Are you missing out on personal time, or time with family and friends? Are you participating in experiences or hobbies you enjoy (not just buying stuff)? Are you having enough fun? Are you fulfilling some of your dreams along the way?

3. Do you have a budget set aside to support personal and social time? If so, do you have a hard time enjoying yourself when you spend this money? Do you have a hard time spending money on yourself?

4. Is there someone else you want to help with your money? Is there a cause or organization you’d like to support financially? Do you want to set aside a legacy for a person or organization? Are you generous and compassionate? Or do people call you Scrooge II: The Miser Strikes Back?

5. Do your savings habits put a strain on any of your relationships?

6. How is your relationship with work? Do you like what you’re doing for money? Is it serving you? Or are you stuck there in part to meet a savings goal? On your deathbed, will you wish you had worked and saved more or spent more time with your loved ones? Yeah, I know it’s a cliché and everyone asks this question, but that’s because it’s an incisive question.

7. Do you shy away from other possibilities in favor of saving? Why? Dig into some of the money messages you learned from others as you were growing up. Review your past experiences. Learn about your Money Scripts. How are your thoughts and beliefs about money serving you now?

8. Do you still feel stressed about saving or compelled to save even though you are on track to exceed your Financial Independence goal?

9. Do you have fears about living in poverty or having a financial disaster?

As you go through these questions, it might be helpful to have the perspective of a Financial Coach. I talk about coaching here if you’d like a quick overview. If you prefer to work with a Financial Therapist rather than a Coach, the Financial Therapy Association maintains a list.  

If you’ve answered all of these questions and feel like you have good balance and positive Money Scripts, and you STILL have extra money to save, then please do save it if you want to. If you want to redirect it to spend more on one of the areas above, that’s great, too.

This is deep, complicated stuff. It might feel like detangling a plate of linguini with Mizithra sauce (SO sticky!). It might even be a journey, to use the world’s oldest and potentially most hackneyed metaphor. I would encourage you by saying that you can handle this! You’ve made it this far (yep, still using the metaphor) and you’re thinking critically about your financial independence and your relationship with money. Give yourself time to work through it thoroughly and then, as always, take appropriate action.

I’ll end with a happy thought: I’d be willing to bet that the people like you who save extra money are also the ones who are best equipped to deal with anything life throws at them. Count on yourself to make any changes you need after you stop working for money. If you need to cut back for a while due to a financial downturn or other emergency, you can count on yourself for that. And when things get better, you’ll be in a good place to start spending again if it suits you. I love that about you!

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Penny Farthing

I, Penny Farthing (non-wizarding name Kerry Read ), actually have a day job in the world of finance. This blog came into being because of my deep and abiding love for geeks and Personal Finance.