When it comes to retirement, you can’t save enough money—until you do.
Saving for a world after work is now an almost universal ideal: 50-year-old workers worried about their nest eggs have been joined by younger workers who, during the pandemic, have tried new working conditions and the promise of life outside the office.
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It’s still true that most Americans aren’t saving nearly enough for retirement, according to the a recent Vanguard report. But saving to meet sometimes unrealistic — or unnecessary — retirement goals can come at the expense of a life well lived today.
As with many things in finance, a measured approach is critical. Here are the main signs that you may be overdoing your savings.
Sign 1: Your plan is not clear
From a distance, the promise of going wherever life takes you—a new boat, a beach house, even #vanlife—seems romantic. But without some sense of what you want for your life after work, it can be difficult to know what you can afford compared to how much money you will really need.
Many investment experts suggest that you should set aside about 80% of your current salary each year to maintain your current lifestyle. Are you going to retire completely or working to pay some bills? If you are fully retired, you will need to reach your full goal first.
Consider future housing options as well. Are you planning to age in place or downsize to a downtown apartment or independent living?
Sign 2: You need a 401(k) refresher course.
Employer 401(k) accounts remain a primary retirement 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.
Still have money to spare? Consider a Roth IRA, which uses after-tax contributions to pay out tax-free in retirement. But contributions are capped at $6,000 for younger workers and $7,000 for those over 50.
If your goal with your leftover cash is to simplify your investments, you might want to consider this right away capital plays such as stocks or mutual funds. Just be aware that you will be taxed on the income.
Sign 3: You’re falling short of other money goals
Are you in debt? Check how much you’re saving compared to paying off debts like car loans, your mortgage, etc. If you’re contributing an amount that will put you over your retirement goal, kill the debt — especially high interest credit cards and personal loans — before depositing into investment accounts.
Interest on debt will eventually strain your savings and potentially cause stress that can contribute to health and relationship problems. Nearly half of couples with consumer debt of $50,000 or more say money is a major reason for arguments, according to research by Ramsey Solutions.
Putting it all together: aim for balance
If you want to know if you’ll have everything you need to live the life you want, think about balancing your life like you balance numbers.
Will you fully retire or work a little? By combining Social Security with retirement and other assets, will you have enough, too much or too little? A general rule of thumb is to follow 4% rule for withdrawals, but it’s always best to consult a financial advisor to put together a plan that fits your specific needs.
Finally, do you find yourself putting off some short-term goals, such as taking well-deserved vacations or just hanging out at a restaurant with friends? While it’s possible to overspend on today’s luxuries, there’s value in enjoying life now by spending within your means.
Of course, avoid confusing “wants” with “needs,” and when buying important things like health or medical items, be careful not to contribute too freely 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 there is affordable travel that you’ve wanted to take, or an adventure you’ve been waiting years to start, consider doing it now instead of hoping your health will allow it later.
Yes, you will spend, but you will also invest in your happiness and make money from your dreams.
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This article provides information only and should not be construed as advice. Provided without any warranty.