Is It Possible To Save TOO MUCH For Retirement?

Alright, ready to move on to Gabe’s question. Yes, ma’am. He says, “My wife and I want to avoid being retirement rich. If we start an account for her, we could have a combined total of $20 million by retirement age. However, we want to retire earlier. What should we do?”

That’s a very open-ended question, but I think it’s interesting that his mentality is that he wants to avoid being retirement rich. I’m curious to hear your thoughts. Can I give a philosophical thing, and then I’ll let you give the analytical side of it?

We do an annual millionaire study of our clients. I have yet because we always close out the survey with some open-ended questions. I keep waiting for somebody to say, “I feel like I saved way too much money.” They don’t. I mean, it’s one of those types of things – should have started saving later. Always. It’s that you just gave the part out loud. The fact that they always answer, “I set my clock to it,” is, “I wish somebody would have told my younger self to save more.” And these are successful people. These are millionaires, and they still have regrets that they didn’t save enough or that they could have done more. So, to have Gabe have the concern that he’s retirement rich is kind of a contrarian take. I’d love to hear your thoughts on that.

I think, so you are financial mutants, and I have tons of friends who do this. They understand compounding interest. They understand how powerful dollars can be. They even go look at the wealth multiplier and see what their dollars can turn into. And they start extrapolating that and they said, “Well, hey, I’m starting out so young, and I figured this out based on this. I’m going to be like Gabe. I’m going to have $20 million in retirement. I’m set.”

Well, in theory, in theory, you’re set, but you haven’t actually gotten there yet. You’ve not actually done it. Just because the mathematics suggest that that’s the trajectory that you could be on does not mean that you’ve already satisfied the work of doing there. Because here’s what’s beautiful about getting to $20 million before you get to $20 million, you’ve got to get to $1 million, and then you’ve got to get to $2 million, and then to $5 million, and then to $10 million. All the time that you’re on this journey, you’re going to be reassessing, “Okay, where am I at today, and ultimately, where do I want to go? What is my finish line? What’s the horizon I’m working towards?”

Well, right now, $20 million may be in the cards for you if you were to continue on your current trajectory all the way out until age 65. But what you may do is, as you build up your assets and you hit $750,000, a million and a half, $3 million, you may begin to reassess and say, “Man, you know, I’m in my early 40s. I’ve got a couple million dollars saved up, and the lifestyle that I live looks like this. I know what my kids have going on, and I know what I want to do with my time and my resources. I don’t need $20 million.”

So, instead of me being retirement rich at 65 with $20 million, maybe I recognize my magic number is $6 million. And I might, based on my trajectory, hit that $6 million at 50, 53, 55. So, it is constantly a plan that you are revisiting and pruning, revisiting and pruning, revisiting and pruning. I think there’s nothing wrong with young people catching this bug and saying, “Man, one day I could have X tens of millions of dollars” and working towards that goal.

Understand that even though that’s the goal that you might be working towards initially, it might not be the actual goal that you hit later in life. Because what I’d hate for you to do is say, “Oh, well, $20 million. I’m going to nail that. I don’t have to take it seriously now. I can save less. I can back off. I’m going to figure out exactly the absolute minimum dollar amount I can save to get to a million dollars by the time that I hit 65.”

I would argue that perhaps you’re not setting yourself up for the success that you’d like to have in retirement. Well, Gabe, to get a number like $20 million, it means you’re probably super young, have a lot of years ahead of you, and you’re still in the wealthy portion of your journey. So, I want to give you some basic things that you ought to be doing.

Make sure you’re doing the 25% of your gross income going towards savings and investments. That will keep you somewhat – just the behavior will make sure that you’re not overestimating what you’re going to have because you’ll at least have the behavior of automatic wealth creation always working for you in the background.

And then I would encourage you every year to go – you can go and download it once, but then use it every year. If you go to learn.money.com, they know your number because that’s where a lot of people see. What I find is I don’t see a lot of people saying, “I’m worried I’m going to have $20 million.” I’m worried. Most people are trying to figure out how they’re going to get to 25%, and they’re trying to enjoy each phase of life – their 20s, their 30s.

So, I always tell them to bedazzle your basic life by still going on vacations, creating memories, and all the other things. But I would get to that, as Bo said, the first million before I started coming off the throttle because a lot of you know it’s kind of like you have some promising talent, and the fact that you’re young and you have this desire to study personal finance, you’re like a promising athlete planning to go into the NBA. Don’t start spending that rookie contract and all the things you’re going to be doing when you haven’t even made it through the JV or varsity team in your high school yet. It’s because that’s kind of what you’re doing by running projections.

We all know it’s great to play with a financial calculator. I was the nerdy kid in the third and fourth grade just playing with the calculator watch and doing multiplication tables. You have a calculator watch too? I love that thing. But it is one of those things where it’s fun to play with financial calculators and project. But life doesn’t work in those perfect little 8%, 10%, or 12% rates of returns. There’s all kinds of volatility and other things. So, I just want you to focus on the behavior. Take advantage of the fact that you’re young and have a lot of talent ahead of you and make the most of it. But let’s not put the cart in front of the horse. For more information, check out our free resources.