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Why You Shouldn't Save Every Penny for Retirement

David Ning

While most people aren't saving nearly as much as they should for retirement, there is a far smaller group of people who are likely over-saving for the future. These super savers go far out of their way to save a few more bucks, and will take on work on the side in order to earn a bit more. These savers single-mindedly work to make their future as financially secure as it can be. But you may be doing yourself a disservice if you neglect your present in order to financially prepare for retirement. Here's how over-saving for retirement can backfire:

The chances of the absolute worst case scenario happening are similar to the odds of winning the lottery. Some people keep saving after they have accumulated 25 times their expected expenses in retirement, just in case future market returns turn out to be significantly worse than expected. We prepare to live longer than 95 too, even though most of us would be extremely fortunate to make it to 90. We don't count on Social Security just in case the program completely goes away, which is very unlikely to happen. And instead of thinking we can make do with less money in retirement, we plan as if we will have to spend even more than now because our health might fail or our kids could need our help. Sure, it's possible that one or more of these worst case scenarios could play out, but the chances of all or even most of them happening to you is extremely slim.

Some spending once in a while can help motivate you to try harder at work. Some people would quit working immediately if there was no need for additional income, but there are perks of having a job too. The need to get up in the morning to accomplish a task can give life purpose, and the daily stimulation can be healthy for the brain. There's a certain satisfaction that comes with meeting deadlines, and the relationships at work can sometimes turn into lifelong friendships.

A fully retired life too early may be isolating. Imagine no longer needing to wake up at a certain time and being able to schedule every day as you please. You could play golf all day, every day or hang out with friends for lunch all the time. This life sounds amazing if you can make it work, but those who don't proactively set it up often end up sitting at home. If all your friends are still working full time, they may be too busy to meet up on a regular basis, and it could take a considerable amount of effort to meet new friends. The lack of daily activities can be depressing for those who lack the initiative to set up regular social events.

There's a fine line between frugal and cheap. If you are always trying to save at every opportunity, you are at risk of taking saving for the future too far. Do you walk across the plaza or even drive across town because you know another store sells aspirin for 20 cents less a bottle? Do you argue with a spouse who splurged on an expensive item, even though he's been maxing out his Roth IRA since he was 16 years old? The more you save, the faster you'll reach financial freedom. But there's a difference between cutting out unnecessary expenses and relationship-damaging cheapness.

Ultimately, fully living in the present can be just as important as saving for the future. What are you really saving for? Making significant sacrifices to save for the future can ultimately be as harmful as spending needlessly on things you don't need. While most folks need to learn how to give up certain habits in order to better prepare for the future, there's are also a few people who need to loosen their grip on their wallet and spend a little to improve their family life and have a little fun.

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