Are You Saving Too Much? No, Really

Even after the recession decimated the net worth of millions, some economists argue people are being tricked into saving more than they need. At least they have conviction.

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Shortly before the financial crisis, some renegade economists were beginning to popularize the notion that many workers were saving too much for retirement. That’s right, too much. Now that the recession has helped set back a typical American’s net worth by 20 years, these heretics are, well, sticking to their story.

Give them props for not flip-flopping. The shifting economic landscape has prompted plenty financial pros to change their tune. A decade after author Jim Glassman wrote the wildly bullish Dow 36,000 on the eve of a horrible bear market he flipped and wrote another book called Safety Net, about how to play it safe long after the storm had passed.

We might have expected a similar turn from Lawrence Kotlikoff, the Boston University economics professor and de facto spokesman for a line of thinking that holds that many folks are over saving—even now. In recent writings for Forbes and the Financial Planning Association, Kotlikoff’s view on this issue remains very much as it was pre-crash. He argues that industry rules of thumb and calculators found on financial firms’ websites (Fidelity, T. Rowe Price, TIAA-CREF, Vanguard) trick many into saving more than they’ll need. Further, Kotlikoff says, financial firms employ scare tactics that steer individuals into high-risk and high-fee assets.

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The crux of his argument: People struggle to save too much at an early age when they have big expenses like cars and houses and weddings and children. This leads to unnecessary austerity. He promotes a tool—his own ESPlanner—that accounts for these expenses and life phases, and shifts the burden of saving to when there are fewer such big expenses. Bludgeoned home values, stalled stock prices and impossibly low fixed-income yields have not changed his view.

To be clear, Kotlikoff believes that a large portion of the population is under saved as well. His focus is on those who are doing a decent job of saving but shortchanging their lifestyle. He doesn’t mince words. From a recent blog:

“Economics has an enormous amount to offer the financial planning industry. But the industry has ignored economics, providing millions of Americans with what I and other economists view as truly awful advice.”

The rule that most planners cite is that an individual will need 75% of final income to live well in retirement. Some have put the rate as high as 85%, which for most workers translates into a depressingly high, if not unattainable, savings goal. New research out of Canada jibes with Kotlikoff’s theories and suggests you may need only about half that much.

Actuary Fred Vettese at Morneau Shepell argues that a couple with $100,000 of household income can easily reduce that to $51,000 in retirement as they shed certain costs like childcare, mortgage payments, employment costs, and saving for retirement. That percentage goes down to 43% if they save a little during their early retirement years, and people with higher income may need as little as 40%.

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Can this be true? Certainly, some folks may be shorting their lifestyle. Our savings infrastructure encourages it—not just in the way financial firms sell products but also in the very nature of our primary savings vehicles. By and large, 401(k) plans do not provide guaranteed lifetime income. So you must guess at how long you’ll live, and overestimate (and thus over save) just to be safe.

Still, it seems clear that under saving is the more pressing issue. About half of workers over 55 have less than $50,000 saved for retirement. That’s a crisis. In that context, saving too much doesn’t even show up on the radar.


Saving too much for retirement isn't a problem for 99.9% of Americans.  Most of us need to save more, much more.  This spring I finally bit the bullet and reviewed my whole financial situation and actually made a plan for retirement.  It wasn't fun or pretty, but I had to do it.  Here are the biggest ways that I found personally to put more money away.

1. I now put away the maximum amount in my 401K (5% for me) that my employer will pay into the plan as a match.  It is free money and dumb not to do it.  It was basically a raise I gave myself.

2. After calculating my expenses, I found that driving was my biggest expense.  I fixed that by buying a fuel efficient car thats durable (Honda Civic), finding an affordable insurance policy for it ($25/month from Insurance Panda, yay!), and using apps like Gasbudy/Waze to save money at the tank.  I cut my transportation costs in half!

3.I cut wayy back on eating out.  I am having a year of putting away money hard, and food was a huge portion of my budget.  I save about an extra $100 a week now, and eat healthier and better.  Ditto for others if you spend a lot of money in bars.

4. I need life insurance to protect my 2 daughters, but I ditched a $275 a month whole life policy for a policy from LifeAnt and now I only spend $25 a month.  I save the difference to my Roth IRA.  If you are unfamiliar with this and want to learn more watch shows or read articles from Suzey Orman or Dave Ramsey sometime.  They are huge proponents. 

There really were no two ways about it. If I plan on having a full savings account (getting there) and a comfortable retirement (I will) I have to make good decisions with my money.


I've maxed out my savings for the last decade and could now probably retire comfortably - but I read that before retirement people expect to most miss the steady income - after retirement people say what they miss most is the social interaction !

Paid employment tends to give me:
meaning, respect, power, status, self-esteem, structure, socially-approved incidental social interactions and support, something outside myself, focus on a greater good, money, a place I belong, a reason to get up in the morning, mattering, where I would be missed, significance, a feeling of contributing, zone/flow/challenge/mental stimulation, enjoyment, healthy exercise, and something to take my mind off my own problems. In a controlled and structured environment it involves carefully monitored established safety procedures and insurance to prevent or cover injury or financial loss.

Retirement from paid employment may risk a loss of the above, leading to boredom, depression, sickness and early death. 

So for now I've continued at work - but recent health issues I've been on sick leave - which throws everything up in the air - can't enjoy wealth much if you don't have health !