Maxing Out Retirement = Saving Too Much?

I came across an interesting online discussion the other day, about how maxing out both a 401k and an IRA was simply a lot of over-saving. The discussion was based on some article about a single adult male who maxed out his 401ks and IRAs every year, and had another $1200/month to invest. His income was not known, but it was assumed that he could make no more than $95k. The general consensus was that anyone with that income and that savings is not having any fun in life. I almost choked when I read the discussion as I have had plenty of fun on far less money when I was single and living in the most expensive area in the country. But mostly what is missed is the brilliant tax strategy in this

...

[Continue Reading at SavingAdvice.com]

This entry was posted in Personal Finance, Retirement, Saving Money, Taxes. Bookmark the permalink.

15 Responses to Maxing Out Retirement = Saving Too Much?

  1. Zachary says:

    I agree. I don’t think it’s possible to save too much for retirement. Since when did living frugally mean having no fun??!!??

  2. Amy F. says:

    Like Zachary said, most of us don’t have to spend a lot of money to have fun–so why not save all we can and give ourselves lots of future options? The critics of this man’s savings habits are probably just jealous that he will be able to retire early and they won’t.

  3. dong says:

    I’m not sure where this discussion was, but I know I was part of a discussion on this at some other blog. (This guy was featured in Walter Updegrave’s column on CNNMoney). I know the discussion I was more centered around what he was saving after his 401k and Roth. Saving as much as you can is all great and good, but it really does need to have a purpose. As Amy F. say if it’s future options that’s great, but it’s improtant to think about those Future options. There isn’t a point in forgoing current pleasures if you don’t knwhat future options you want. There wasn’t enough information in Walter’s column to really know anything one way or the other.

  4. Stan says:

    For some people, saving is a form of having fun. I’ve seen it with some of my friends that I tease, but I’m sure it will be them who will be teasing me later in life.

  5. Pingback: AllFinancialMatters » Blog Archive » The 96th Carnival of Personal Finance

  6. Pingback: Carnival of Personal Finance » Carnival of Personal Finance #96

  7. Dus10 says:

    Well, I certainly think that someone can over save for retirement… but, I think it is rather difficult to do. Even at this savings rate, there are plenty of things to consider that can show how this is just proper planning.

    If he is young (which is our perspective, here), then he is getting in as much money now, while he is young, as possible. This is the best time to make large contributions. If it is done for the first ten years of a career, it will be able to have huge gains over the long run. Then, one can scale back a bit later for things like homes and saving for the education of any offspring.

    If he is old (which is not the perspective here), then perhaps it is just “catch up” time. This would actually mean that it may be too low.

  8. broknowrchlatr says:

    I definately agree. I am in roughly the same income range but have a stay at home wife and 2 kids. I max out a 401k, 2 IRAs, and an HSA. I can still afford a $1500 a month house payment and we are taking 4 total vacations this year.

    Now, if this was someone making $40 a year, that would be differnt.

  9. Pingback: No Credit Needed » Blog Archive » Carnivals, Network Updates, and Articles To Read

  10. Pingback: Broke Now, Rich Later » Carnival of Personal Finance #95 (part #1)

  11. j says:

    75,000 incomes, 95,000 incomes – so sick of reading about rich people all the time. The median income isn’t that high and yet everything in the world seems to assume everyone is rich.

  12. Fern says:

    I would never discourage anyone from saving as much as possible for retirement, as there are so many unknowns (the cost of healthcare and long-term care among them), HOWEVER, as i was cleaning up an fat file of old personal finance articles in a file i’ve got i came across one from 1998 that i found worth re-reading.

    It said that for many years now, tax-deferred savings has been the mantra for all of us but that for some folks, especially for those in low to moderate income levels, tax-deferred savings may come back to haunt you when you’re in retirement. That’s becus it is not entirely a given that you will be in a lower tax bracket when you retire.

    Over the long term, taxes always seem to be inexorably increasing, so in a sense, you might say that chances are you’ll be paying more in taxes 20 or 30 years down the road regardless of what tax bracket you’re in. So according to this article, you might be in for a nasty surprise.

    I think that at least when it comes to a 401k plan with an employer match, the benefits of contributing far outweigh the risk of having accumulated so much for retirement that it bumps you into a higher bracket.

    However, I have been slow to convert most of my traditional IRAs to Roths as i’m now in the 25% tax bracket ($54K income) and am not convinced that my bracket will change when i get into my 60s since the 25% bracket goes from something like $30k up to $75K.

  13. Henry @ Binary Dollar says:

    I think it’s possible to be saving too much if your money could go elsewhere and be more effective. For example, if you have tons of credit card debt, you should probably pay that off first.

  14. needtaxbreak says:

    Hi all,

    Both my husband and I are making low 90s(x2), we dont have a house (we are putting it off because we THINK housing market will go down more next year, meanwhile we will have more money saved for downpayment), I max my 401k; he doesnt have any 401k plan as of yet; in few months he will have a 401K. How can we get a tax break? any advice will be greatly appriciated!! thanks all!

  15. Hi All,
    Certainly it’s true that lots
    of folks, especially folks in the
    higher income brackets need to save
    more for retirement. But, it is certainly possible to tax defer too much. If your retirement fund exceeds about 25 times earnings when you retire, then your required minimum distributions will be larger than your income was, and your taxes will increase. The point of tax deferral
    is to avoid taxes. Also, if you are
    a lower income worker, the value of
    tax deferral is far less, and it
    comes at a very high price, taxes on
    your Social Security income. There
    are some employers who force their
    employees to tax defer 20% of income,
    and those employees, especially in
    the lower tax brackets, should not
    be maxing out IRAs. I read an article that showed (very simply) that most
    Americans would save too much if they
    merely contributed $2K to an IRA each
    year. That’s because most Americans
    are not wealthy. If you have tax
    deferred too much, you can retire early and roll over an IRA to a Roth
    IRA in stages, paying the income taxes
    at hopefully a lower rate. If you want to save more so you can retire early, great, just don’t tax-defer it all.
    Cheers,
    Susanna

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>