Is It Possible to Save Too Much Money for Retirement?

Believe it or not, there are financial writers out there who believe that it’s possible for you to save too much money for retirement. If you’re the average worker or retiree, you’re probably laughing at the thought of that. Too much money? If only we could be so lucky.

The average American actually doesn’t have any retirement savings, and even those with retirement accounts often only have sums in the low six figures. While the stock market boom of the last few years has resulted in a record number of 401(k) millionaires, those people are the exception, not the rule.

For most people nearing retirement, the real fear is not having enough money for retirement, or running out of money in old age if you end up living into your late 80s or into your 90s. And that fear isn’t entirely unwarranted. With inflation driving up the cost of living, expenses can erode your retirement savings faster than you realize.

What most people who claim you can save too much are worried about is people failing to live their lives while they’re young, saving a lot of money, and then not being able to use it all in retirement. But it’s far better to have too much money when you enter retirement rather than too little. The future isn’t certain, and the last thing you want is to enter retirement thinking that you’re all set, then finding out 15-20 years down the road that you should have been saving more. Here are three things to keep in mind.

1. The Cost of Retirement Is Increasing

By far the biggest reason to save as much as possible for retirement is the increased cost of living that you’ll experience. While you’ll probably travel less as you age, and you may downsize your house and style of living, one of the biggest costs you’ll incur will be healthcare expenses. Healthcare expenses have already skyrocketed in recent years since the passage of Obamacare, and future price increases could see double digit rises from year to year.

Even if you’re healthy now, or if you come from a line of strong, healthy people, all it takes is one healthcare crisis to wipe out a significant portion of your savings. Even with good insurance, a single cancerous tumor could cost you thousands or tens of thousands of dollars. And if you have chronic illnesses, or many chronic conditions at once, healthcare costs could eat up a major chunk of your retirement income.

2. The Future of the Economy Is Uncertain

The only thing certain about the future is uncertainty. While we all expect things to remain as they have been, we can’t be sure that will be the case. Many Americans today are working longer in order to build up larger nest eggs, or they’re semi-retiring, taking on part-time consulting work or odd jobs. Others may plan to retire, take some time off, and then get back to part-time work. But in the event of a major financial crisis, many of those plans may end up getting run off the rails.

When it comes to saving money for retirement, you need to assume that you’ll never work again and never have a steady wage stream. Assume that your current savings and any income from those savings will make up the bulk of your retirement income. Could you survive on that? What would happen if you had to dip into your principal to make ends meet? Could you afford to eat 4%, 5%, or 10% of your principal each year in retirement?

These are questions you’re going to want to ask yourself before you retire. Remember that when you retire at age 65, your average life expectancy is about 20 years. If you don’t have 20 years worth of retirement savings built up by retirement, you need to take steps to fix that.

3. Protection Against Inflation Is a Necessity

Many planning for retirement also fail to take account of inflation and its impact on your ability to spend in retirement. Even “low” inflation of 2% per year means that your cost of living will rise 50% over 20 years. If inflation were to jump to 5% per year, prices would increase 165% in 20 years. It can be difficult to calculate the effect of inflation on your spending, but just assume that it’s a given.

Then there’s the threat of hyperinflation which is always present. Everyone thinks “It can’t happen here,” but it has, even if that was during the Revolutionary War. No one in Germany in the 1920s thought it could happen either, but it did. And as we’ve seen in Brazil, Zimbabwe, Serbia, Hungary, Venezuela, and numerous other countries around the world, hyperinflation is always a potential threat.

We’ve all heard the stories of needing carts full of money to buy a loaf of bread. But have you heard about the stories of pensioners committing suicide because they didn’t have enough money to live? Those who had saved up thousands of marks or who were relying on generous pensions found that hyperinflation had reduced a lifetime of saving and thrift into something worth less than pennies, as the German government attempted to print its way out of economic distress.

Those who survived the Weimar hyperinflation were those with tangible assets that they could use or trade. Whether it was foreign currency, gold and silver coins, or even just clothes and tools, having tangible goods and commodities trumped having large holdings of paper or large bank account balances.

With the Federal Reserve having added trillions of dollars to its balance sheet in just a few months this year, the threat of hyperinflation in the US remains a real one. Are you prepared if that were to happen here? Do you own tangible assets such as precious metals? Have you protected your assets with a gold IRA? Being complacent about the threat of hyperinflation could cost you.

You Can Never Have Too Much Money Saved for Retirement

The answer to whether it’s possible to have too much money saved for retirement is a resounding no. When you realize that having insufficient retirement savings is literally putting your life on the line, that should give you a tremendous impetus to save and invest. With hard work, a sound investment plan, and a well-diversified portfolio, every investor should strive to save as much money for retirement as possible.