This post is in response to a question an individual had for me when I was meeting with her a few months ago. The question she had for me and the title of the post was if she was saving too much money.
The reason she asked is that after a conversation with friends of hers, they had collectively told her that she was saving too much money for retirement. Currently, this 25 year old was saving 26% of her income for retirement! My verbal response was a firm, “Well done!” My internal response was, “Get some new friends.”
Her friends were trying to convince her that 10% was more than enough to save for retirement at such a young age. While 10% is a decent amount to put away, 26% is even better. In addition, this young lady was already used to saving 26% of her income. It wasn’t straining her financially.
This is what I told her. I recommended that she keep saving the same amount and gave her some reasons why. The first reason is that once she reduced the amount to say, 10% of her income, she would have an extremely difficult time increasing it in the future. Psychologically, she would be used to spending that money on something else and would see an increase as a “sacrifice” that would put strain on her income.
Second, we discussed the time value of money. Like any finance nerd I grabbed my financial calculator and went to work. Based on her income of $50,000 and current investment of $25,000 already in her plan, I took 26% of her income ($13,000) and invested that annual payment at 6% for 30 years. This turns out to be just over 1.17 million dollars (not accounting for any annual raises). Next, I reduced the annual contribution to just $5,000 (10%) of her income (again, not accounting for raises). In 30 years her nest egg dropped to just under $539,000 – less than half of what she’s currently on track to have.
Finally, and respectfully, I asked if her friends were willing to hand her a check at retirement for the difference. In other words, I asked if she was confident her friends would hand her a check in 30 years for $631,000 as congratulations for taking their advice.
She simply smiled and shook her head.
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.
Great article Sterling and Jim. Very clever in making a huge point to young investors.
Thanks, Steven!
Jim – I love your stuff and rarely find myself on the other side of an issue, but here I will respectfully try and add a nuance of disagreement. Your arithmetic is obviously correct, as is your behavioral analysis that it is difficult to go backwards in consumption once started. The issue I have is this…logically if it is possible to save to little, it has to be equally possible (although quite rare), to save too much. And more importantly, the question that must be addressed is…is your life today…as important as your life in retirement?? Will foregone trips to interesting places, or experiences with your friends, or whatever else you highly value now, be worth the sacrifice you are making for this opaque thing we call retirement. Goals based planning should always ask the question of what are the things that you most highly value and then make trade offs with things that are of lesser value. If in fact early retirement is your most prized goal then by all means, continue to save like you are now. But there are opportunity costs to that decision and no where did anyone mention a dialogue that asked those really important questions about what the client saw as “really important” before giving advice about how much or how little to save. Retirement is a goal as is seeing the world or collecting antique cars. Only the client can decide the relative priorities they have among those competing goals and the “sacrifice” they are making. I have seen too many little league games and piano recitals missed by people who were so focused on life later…they forgot about living the one life they had today!
Thanks for the comment, Perry. I agree that it does come down to opportunity costs. What concerns me is too many folks go for instant gratification versus thinking ahead. But your points are well received.