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I'm afraid my wife and I may be saving too much money. We're both 39 years old and, between retirement, accounts for my daughter's education and future financial security and various brokerage accounts, we save about 21 percent of our gross pay.
We also use another 7 percent or so of our pay to prepay our mortgage. It feels great to have so much saved, but sometimes I feel we're scrimping too much today to pay for tomorrow. Is it possible we're saving too much -- and, if so, where might we cut back?
-- Witold Pawlowicz, Hawthorne, NY
I have to admit this isn't a question I get every day. In fact, I've never gotten it before. Given the spendthrift habits of most Americans, it's just not something that's ever come up. Saving too much? It's almost like asking whether someone can be too rich or too smart.
What are the trade-offs?
Fact is, though, it is possible for someone to save too much. Think of it this way. Suppose you scrimp and save your entire life and manage to amass a huge nest egg for retirement, but you're so concerned about squirreling away every cent that you and your family lead drab uninspired lives. Even if you manage to live much better in retirement, would that be a good tradeoff?
You may be able to enjoy yourself in retirement, but what kind of life would you have to look back on? What kind of memories and shared experiences with your family would you have? By no means do I want to equate a happy fulfilling life with spending money. But unless you're an ascetic, happiness also isn't likely to come from continuous self denial.
We've got to achieve a balance. Given our income and resources, we should do our best to experience the joys and pleasures of life available to us today, but at the same time set something aside so that we can continue to experience life's joys and pleasures in the future when we may not have as much income.
There are other risks to saving too much. Suppose you manage to accumulate a humongous retirement portfolio but because you're so concerned about running out of money in your dotage that you can never bring yourself to spend those savings.
In short, you continue to stint in retirement as you did earlier your life. Or maybe your health gives out so that you never get to take those wonderful vacations or buy that second home on the beach or otherwise enjoy the money you set aside.
I don't bring up these examples because I want people to live for today and forget about tomorrow. God knows, too many of us already do that. But you don't want to create a situation where you've forsaken the present for the hopes of a glorious future. Nor do you want to live so much for the present that you ignore the future. Balance is the key.
Your next steps
So what does this mean as a practical matter for someone like yourself? The first thing you should do is see whether, indeed, you are saving too much. Go to an online retirement calculator such as our Retirement Planner and plug in information such as the value of your savings, your income, the estimated income you'll need in retirement and see whether you're really saving enough. You might be surprised to find you're not as far ahead as you think you are.
If it does appear that you're on target to a secure retirement and you'd like to cut back on the scrimping and do a little more living, I'd say the first area you could first consider at least paring back is saving for your daughter's college education and certainly any savings for her future.
I don't think it's unreasonable to expect her to finance at least a part of her college expenses through grants and loans. And if she has a college education, she should be capable of saving for her own financial future.
You might also consider cutting back on or even eliminating your mortgage prepayments. Given the fact that you sock away so much already, it's not as if paying the mortgage is interfering with your ability to save.
One final note: given your age, there is still a lot that can change the outlook between now and the time you're ready to retire. A bear market could devastate the value of your investments, a layoff might disrupt your income and any number of other unpredictable events could affect your financial health (not to mention physical health).
So even if it looks like you've got it made at the moment, you should probably make gradual changes in your savings program -- and then monitor your situation every few years to see if you still have this "problem."
Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World."