Retirement: Save As Little As You Can, At Your Own Risk

by: Roger Nusbaum

roger nusbaumRoger Nusbaum submits: I was sent a link to this article by Paul Farrell on MarketWatch the delves into a study that apparently says we are saving too much for retirement.

I saw a segment on CNBC about this a while back, and actually it is a little confusing. The headline says "You're saving 'too much' for retirement!" but the issues seems to be more about online calculators from brokerage firms telling us we need more than is actually true.

These are two different matters, and to complicate things further the article notes that the average American has a net worth of $50,000 excluding home equity. I can't vouch for the stat, but that is the number given.

The reason brokerage calculators tells to save more than we need to (if this is even true) -- is to rack up more fees at our expense. As a theory it seems plausible, and I am sure their data backs up the idea.

There are a couple of so-whats and a little bit of philosophy to tie this up.

The first so-what has to do with the fees (here I am talking about paying minimal fees using a few index funds and a few stocks with a $10 commission at a discount firm). You are only as healthy as your teeth. It would be nice if the dentist was cheaper, but he/she is not. You gotta go, you gotta pay what it costs, and you should be at least a little wary if the dentist is too cheap.

I'm not sure if this metaphor stands up or not, but you get the idea.

The other so-what is that since no one has enough money, who cares? If, after plugging in your numbers, you are told to save more than you can afford, what are you going to do? Your going to save what you can.

Now for a little philosophy: If you crunch all the numbers and come up with $800,000 as your number, it would be not be wise to quit if you get to your number a little early. How often do unexpected things come up that cost money? Have you ever known someone who needed to spend money bailing their adult children out of some sort of problem? Life can bring many surprises, and most of them cost money.

A problem can't arise from having a little more money than you think you need. Do you think a problem can pop up when you save the exact number your plan calls for? Your answer to that question determines what you think of the Farrell article.