Americans are constantly warned about a possible retirement crisis, where the masses lack adequate savings to survive their golden years. But some experts say many Americans have over-saved.
Saving too much is the only thing worse than saving too little because people are making unnecessary sacrifices today to stash more money than they will actually need in the future, says Time.
Lawrence Kotlikoff, a Boston University economics professor, is one expert who has long waved the red flag warning that some Americans are placing too much in the pot for retirement.
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Kotlikoff recognizes the majority of the population are indeed under-saving. But he also says that many 401(k) savers and others are overdoing it, says Time. Kotlikoff says the financial industry employs scare tactics to steer individuals into high-risk and high-fee assets, causing people to short-change their daily lifestyle, says Time.
Even after the Great Recession, Kotlikoff asserted that people were struggling to save too much too early in life, when they have big expenses like college, weddings and children.
Kotlikoff hasn't changed his tune, and other financial experts are also aiming to raise awareness about the possibility of over-saving.
We're generally advised to stash away 10% to 15% of our annual income for retirement, from the first month of our career to the last month, notes Kiplinger. And though that plan sounds straightforward enough, it doesn't take into consideration the varying paths and potholes in life, the article says.
“People who have a child are probably going to be consuming differently and saving differently than if they don't have children and don't intend to have children,” says Sylvester Schieber, former chairman of the Social Security Advisory Board in the Kiplinger article.
One problem with traditional wisdom is people are often made to feel that if they step off course, they're doomed. And that attitude may be too dire, according to some experts.
A person may go through a period of saving less than advised but it doesn't mean there's not time to catch up, Kiplinger explains. Eventually, kids grow up, mortgages get paid off, and incomes rise and when people are in their mid-50s they may be able to free up 20% or more of their annual income for retirement savings.
At 50, American workers can make catch-up contributions of $5,500 to their 401(k)s in addition to the maximum annual contribution ($17,500), and add $1,000 to their IRAs on top of the annual max of $5,500.
The black-and-white, ready-or-not assessments of past years have given way to “a more nuanced view of preparedness,” says Stephen Utkus, director of the Vanguard Center for Retirement Research tells Kiplinger.
“You have to look under the covers—it's person by person,” he added.
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