Are You Over Saving?
I saw a recent post where someone was saving $3,000 a month. Along with their pension, their savings rate would likely be higher than 30%, maybe even pushing 40% or more.
They were projecting a retirement portfolio somewhere around $4 million and, between their pension and a 4% withdrawal from the portfolio, expected to have more than $220,000 a year in retirement income. A number that would likely exceed what they are living on now.Â
When I see numbers like that, I always want to ask two questions: Why are you saving so much? And what is the money for?
Look, saving for retirement is important, and it’s something people on a platform like this are already ahead on, but when you also have a pension that replaces 50% of your salary, is indexed and paid out for life, backed by the Federal Government, and the person will be eligible to collect this starting at 46, bridged to 65 when CPP and OAS could be added, one has to start asking these questions.Â
What is it that you are saving for, why is your target so aggressive, is it just because you want to see a larger number on the screen? Saving can become part of your identity and I’ve seen people get to the age where they had planned to spend the money and either struggle to do it or simply never get the chance. My own mother died and didn't have a single day to enjoy the retirement they had spent years saving for.Â
And then there is the other side of it. What are you trading today for that goal, since everything is a trade. I work with guys who are grinding, working overtime and taking more time away from their families today when their kids are young and their impact can be felt so much more, in favour of earning more money to do what with? Save it?
When they say they want to spend more time with their family, it’s like, then don’t work the overtime. Just do that. Why are you working overtime to earn more money that you are only going to save for some future version of your life?
If you are already comfortable living on 60% or 70% of what you earn today, and you have a pension that will replace 40% or 50% of your current income, your portfolio does not need to replace your entire salary to maintain your lifestyle, but you could potentially save less and have more time to spend with your family and work less overtime. What are those moments worth?
There is nothing wrong with wanting $4 million or more. There is nothing wrong with wanting to leave a large estate or having an enormous safety cushion. If that is your goal, keep saving, but have you really sat down and worked out what you are trading and why?
I think sometimes people get so focused on maximizing retirement that they forget to ask what they are actually saving for.
For me personally I don't think the goal should be to die with the biggest portfolio. Money is a tool. It should be used to build financial security, but it should also be used to enhance your life along the way.
