Could You Be Saving Too Much?

It's easy to know if your finances are in the same sorry state as the not-so-silent American majority. Just turn on the news and hear how Americans are struggling to make ends meet, with no relief in sight.

If you're a member of the slender slice of the population that may actually be saving too much -- you probably feel lucky not to be amongst the financially distressed, but there's a good chance you don't realize the extent of your good fortune.

About 10 percent of the population is accumulating too much retirement savings in the sense that they could have saved significantly less and still retired with enough resources to continue in the lifestyle they enjoyed during their working life, estimates Harvard University economist David Laibson. (It's generally assumed you need about 70 percent to 90 percent of your income to maintain the same lifestyle in retirement.)

Some of these lucky individuals may be unaware of their status because their ample savings don't come from a deliberate decision of their own, but rather from working at a "relatively paternalistic" company, Laibson says.

Americans typically build retirement savings in three ways, says Laibson. For all of us, our required contributions to Social Security will provide a guaranteed monthly check. Owning a home and gradually paying off the mortgage during your working life generates housing wealth that supports retirees' standard of living (if you've paid off your mortgage, you don't have to pay out of pocket for housing). Finally, company plans, such as 401(k)s and defined pensions, provide the other key source of financial support in retirement.

In Good Company

Laibson, who studies retirement issues as well as the psychological factors influencing savings behaviors, observes: "The most important driver (of whether an individual ends up retirement-rich) is the savings institutions at the workplace."

About half of all private sector employers don't offer any type of 401(k) or pension plan. That's a big reason why some 60 percent of Americans aren't building the savings they'll need.

"If their workplace isn't helping them save, they're not doing it on their own," Laibson says.

Of the rest, some 30 percent are saving just about adequately and 10 percent will wind up retirement-rich, according to Laibson. His estimates aren't based upon his own research, but rather upon sifting through dozens of research reports and integrating the findings.

Laibson's estimates are "consistent" with independent findings of the Center for Retirement Research at Boston College, says Alicia Munnell, center director. Munnell emphasizes that the majority of Americans won't have adequate retirement assets, according to the center's ongoing analysis of data on household consumer finances collected by the Federal Reserve.

Are You One?

Those making up the 10 percent cut across income levels, says Laibson.

In fact, Social Security benefits provide more of the income necessary to maintain the lifestyle of more modest income earners, so that if those workers also have built housing and pension wealth, they are likely to have accumulated an ample retirement fund.

If you've worked at one of the large companies that offer generous plans, and have a defined benefit and a defined contribution plan, like a 401(k), you stand a good chance of being in the 10-percent group of supersavers, Laibson says.

Moreover, if you didn't keep refinancing and cashing out the equity in your home during the boom housing years, and have contributed to a 401(k) with a generous match from your employer, you may also be in the fortunate 10 percent.

Think About It

When they work for a company that provides a pension or has created an environment that strongly supports employee contributions to a 401(k), individuals may be supersavers without even knowing it, since they were prodded by their companies and haven't bothered calculating projections of retirement income.

Laibson is not looking at other forms of savings, such as an emergency fund, when he defines these supersavers.

Indeed, he believes the oft-repeated advice to hold six to nine months' worth of salary in an emergency fund "is an impractical goal for most households."

It's daunting for most people to maintain savings without a specific purpose, he says. "People build up some liquid funds and then the car breaks down, or there's some other way to spend it."