A 24-year-old savings junkie

Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005)

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NEW YORK (Money) -- Question: I'm 24 years old and feel like I've become a savings junkie. I've already maxed out my Roth 401(k) contribution for this year and now I'm thinking about opening up an IRA too. I have no debt, and I have about $13,000 in other savings as well. What do you think -- should I open the IRA? --Kyle, Boston, Mass.

Answer: I say go for it, dude. And assuming you're eligible, max out that IRA while you're at it.

Yes, I know that there are economists like Boston University's Laurence Kotlikoff who worry that some people may be oversaving and, as a result, not enjoying their lives as much as they could during their careers.

And I have some sympathy for that position. You've got one shot at life. Do you really want pinching every penny for retirement to be the focus of it? Even if you succeed in accumulating a massive nest egg, would it be worthwhile if you led a mingy existence while doing so?

You also have to wonder how much pleasure you could take in eventually spending that nest egg. I mean, is it likely that after a lifetime of privation and denial, you're going to suddenly cut loose and live large once you retire?

At the same time, though, I also know that it's hard to pinpoint exactly how much you should save for retirement, particularly early in your career. There's just too much uncertainty when you're planning for something decades away. How much will you earn over the course of your working life? What sort of retirement plans will you have access to at your various jobs? How much will you be able to sock away in 401(k) plans and the like as your family and financial situation changes over the years? How generous will your employers be in providing matching funds? What size returns will you earn? What will Social Security look like in 40 years?

Given all the unknowables, I'd rather err on the side of saving too much than cutting it too close. And I suspect that many people who retired or were ready to retire just as their 401(k) balances took a dive last year also wouldn't have minded having the bigger cushion that saving a little more throughout one's career can provide.

That said, you don't want to just stash cash away willy nilly. You want to have a sense of how much you should be putting away to have a reasonable assurance that you're on track toward a secure retirement.

One way to do that is to go to an online tool like our Retirement Planner or T. Rowe Price's Retirement Income Calculator, plug in information such as how much you're saving each year, how much you've already accumulated in retirement accounts and when you plan to retire. You'll come away with an estimate of your odds of being able to retire with the income you need based on different levels of savings.

Another is to try the ESPlanner program Kotlikoff has developed. Unlike conventional retirement planning software, it uses the concept of consumption smoothing to help determine a level of retirement savings that will allow you to maintain a stable living standard throughout your life. You can rev up a basic version of the program free online. But if you want the more robust downloadable version, you'll have to shell out $149.

Or you could always hire a financial planner to crunch the numbers for you.

But whatever route you take, you will have to make assumptions about the future -- the rate of inflation, how much your pay will increase, what sort of investment returns you'll earn, how much you'll receive in Social Security payments. And unless you're clairvoyant -- or extremely lucky -- those assumptions will be off to some degree or another.

Monitoring your progress periodically and fine tuning your savings effort to take into account changes in the economy and markets as well as your personal financial situation can reduce the chance that you'll find yourself on the eve of retirement with far too little or far too much saved. Still, to be on the safe side, I'd recommend saving a bit more than your target savings figure if possible. That will give you more of a cushion in case life doesn't unfold quite as you expect.

Finally, as you get older and acquire more responsibilities -- a house, a spouse, a few kids, whatever -- you may very well find that you won't have as much spare income to throw into savings as you do today. That's all the more reason to sock away all you can while you can. If an oversized nest egg becomes a problem, you can always save less later, or retire early.

Bottom line: I wouldn't fret too much about being a savings junkie. Because when it comes to bad habits, saving too much is way, way down on the list.