Is it possible to save too much for the future?
Back in December, I shared my panic about not saving enough for early retirement. I was putting away $950 each month back then, and once employer contributions kicked in, that increased to $1,200. Because of my little panic attack, I increased it again to $1,350/month for January, and then in another surge of panic in that same month, increased it yet again to where it currently sits at $1,685/month.
And even though I’m not stretching myself thin by contributing $1,685/month (which includes employer contribution), I couldn’t help but ask myself two important questions:
- Could I be saving less into retirement and more into my general savings? If I don’t actually need to be saving this much money to reach my goal of early retirement, would I be better off setting that money aside for a down payment on a future home? Or spending more of it on life (which basically means travel)?
- If I continue saving at this rate, could I potentially retire earlier than the 55-57 age that I’m currently targeted?
Even though I’ve been saving for retirement for 10 years already, and early retirement is my number one financial goal, I really don’t think I’ve ever grasped the actual reality of retirement. I’ve just kind of been wildly throwing money into my portfolio in the hope that it would fund whatever lifestyle I choose to have. But the thing is, I’ve always known what I want. Maybe I can’t picture the details exactly, but I know the feeling.
Related: What does retirement mean to you?
I wrote this back in 2013 and it still feels so true to me:
Retirement to me means having the freedom to do whatever I want to do, without the obligation to work for a living. I guess you could call it financial independence, rather than retirement. Who knows what I’ll be up to! But whatever it is, it’ll be my choice, and it won’t be based on the need to bring in an income.
Most experts say you want to replace 70% of your pre-retirement income in order to live comfortably. Which is what I’ve always been aiming for. 70% of my income right now would conservatively be about $55-60k. But the issue I’m having is, that number seems really, really high. And I’m beginning to realize that your retirement calculations should be based on your pre-retirement SPENDING, rather than your income. Right?
Because, come on. I’ve never in my life spent $55-60k in one year! I’m living quite comfortably right now on 35-40% of my income (and that includes paying rent) in Canada’s most expensive city. So if I have no rent/mortgage to pay during retirement, and I live a good life right now, why on earth would I ever need 70% of my current income during retirement?
Sure, unexpected costs will always creep up on you. So let’s say on the high end, I’ll want 50% of my income during retirement. I’m a cautious person, and there’s always a degree of uncertainty to life – so the extra padding would be nice. But that’s still a lot less than the 70% I’ve been stressing myself out to obtain.
My goal for this month is to take a really good look at my retirement plan, my current contribution rate, and what that means for my goal of early retirement. I don’t know if I’ll end up changing anything, but I do think it’s an important exercise. And if anything, it might calm me down a bit. :)
Do you have a favourite online retirement calculator?
Author: Krystal Yee
I’m a personal finance blogger and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, climbing, playing field hockey, or plotting my next adventure.