Am I Saving Too Much For Retirement? Three Signs To Look For

You know that saving enough for retirement is important. And most of us worry that we aren’t depositing enough into our 401(k) accounts and IRAs each year. But is it possible to save too much for retirement?

Surprisingly, yes. If you deposit so much in your retirement accounts that you can’t build an emergency fund or pay off your credit card debt in full each month, those are two important signs that you might be saving too much for retirement.

Here is a look at the signs that you might be falling into this financial trap.

Can You Save Too Much For Retirement?

How much should you be saving for retirement? There are plenty of formulas. T. Rowe Price says that you should have saved one to one-and-a-half times your salary by the time you turn 35. According to this formula, if you earn $70,000 a year, you should have saved $70,000 to $105,000. By the time you are 45, T. Rowe Price says that you should have saved from two-and-a-half to four times your salary. If you are earning $80,000, you should have saved from $200,000 to $320,000 for retirement by the time you turn 45.

Again, that’s just one formula. Fidelity says that you should save one times your salary by the time you are 30, three times your salary by the time you hit 40 and six times by your 50^th birthday.

Hitting numbers like this is a reasonable goal for building your retirement savings. But it is possible to put away too much for retirement. If you find yourself exceeding benchmarks such as those suggested by Fidelity and T. Rowe Price, you might be saving too much. By doing this, you could make it difficult to pay your other bills, cut down your credit card debt or build an emergency fund from which you can draw if you face an unexpected expense.

What Affects How Much You Should Save For Retirement?

It’s important to remember, too, that not everyone has to save the same amount of money for retirement. Several factors lessen the amount you’ll need to save. Maybe you plan to downsize your home in retirement or live a quiet life in the country. You might not need as much money as those who plan to travel the globe during their retirement years. You might need less in retirement savings, too, if you live in a more affordable part of the country.

Your health plays a role, too. If you are healthy, you might not need as much saved as someone facing costly health issues. Additional income sources such as pensions, royalties, annuities, legal settlements and Social Security payments can also impact how much you need to retire. Because of this, it’s important to create a retirement savings plan that’s tailored to your circumstances. General guidelines can only give you a starting point for determining how much you need to save.

Downsides Of Saving Too Much For Retirement

You might not consider saving too much for retirement to be a bad thing. And it’s true that it’s better than not saving enough. But if you are already on track to meet your retirement goals, there are downsides to saving too much for retirement:

• You might be vulnerable to financial emergencies: If you put too much away for retirement each month, you might not have enough money to cover an emergency such as a leaking hot water heater, blown auto transmission or big medical bill.
• You might miss out on investment opportunities: If you are putting all your extra money into retirement savings, you might not have enough dollars to invest in the stock market, real estate or other investment vehicles. These investments could help you grow your wealth, something you’d miss out on if you are instead devoting too many of your dollars to your retirement accounts.
• Your debts could grow: You should never put so much into your retirement accounts that you don’t have enough funds to pay off high-interest-rate debt. This includes credit cards, which can come with interest rates of 27% or higher, and personal loans. Don’t let these debts linger, and cost you in the form of high interest payments, so that you can invest even more in your retirement funds.

3 Signs You’re Over Saving For Retirement 

How do you know if you’re saving too much for retirement? Here are some of the most common signs:

1. You’re Falling Behind On Current Expenses

Are you struggling to pay off your credit card debt? Are you relying on personal loans to cover large purchases? Do you find it a challenge to pay for basic living expenses such as groceries, clothing, transportation and utilities? These are all signs that you might be putting too much away for retirement. While it’s important to save enough for your retirement years, you also need to pay your credit card bills, cover visits to the doctor, pay for groceries and make your rent each month. If you are struggling with these expenses, it might make sense to reduce your retirement contributions so that you can live comfortably today.

2. You’re Unable To Save For Emergencies

An emergency fund is a necessity: If an unexpected financial emergency pops up – such as a $5,000 repair bill for your car or a $4,000 medical bill because you’ve broken your arm – you can dip into your emergency fund to cover these costs with cash. That’s a better option than relying on credit cards or personal loans to cover these financial surprises. Most financial experts recommend that you save from 3 to 6 months of daily living expenses in your emergency fund. If you haven’t built an emergency fund? You might need to reduce your retirement savings until you can.

3. You’re Hitting Or Exceeding Annual Contribution Limits

Each year, the IRS sets limits on how much individuals can contribute to their retirement savings accounts. For 2024, individuals saving in a 401(k), 403(b), Thrift Savings Plan and most 457 plans can contribute a maximum of $23,000. Those contributing to traditional and Roth IRAs can contribute a maximum of $7,000. People 50 and older can make additional catch-up contributions. For 2024, these savers can contribute an extra $7,500 in their 401(k) and 403(b) plans and an extra $1,000 in their traditional and Roth IRAs.

If you exceed the 401(k) contribution limits or contribute too much to an IRA, you will be taxed on the extra amount you paid. If you are always hitting or frequently exceeding your annual contribution limits, that’s another sign that you might be contributing too much to your retirement savings.

3 Signs You Should Save More For Retirement

While you don’t want to save too much for retirement, you don’t want to neglect your retirement savings, either. How do you know if you are not saving enough for your retirement years? Here are some signs:

You’re not saving enough to claim your employer match: Your employer might offer a 401(k) match in which it contributes money to your 401(k) account each year if you save a certain amount. Fidelity says that more than 85% of 401(k) plans it services offer some type of employer match. If you're not saving enough each year to qualify for your company's 401(k) match, you're not only missing out on free retirement dollars, you're also not saving enough for your post-work years.

You haven’t saved the equivalent of your annual salary by your 30^th birthday: Fidelity recommends that you save the equivalent of your annual salary by the time you are 30. If you earn $60,000, then, you should have saved that amount in your retirement savings accounts by your 30^th birthday. If you haven’t? That’s a sign that you haven’t saved enough for your retirement years.

You’re not saving 15% of your income each month: It’s only a guideline, but financial experts often recommend that you save at least 15% of your income each month in your retirement accounts. If you are contributing to a 401(k) account, for example, you should be contributing 15% of each paycheck to it. If you aren’t doing this? You might fall short of reaching your retirement savings goals.

The Bottom Line: Don’t Let Saving For Retirement Derail Your Current Financial Situation

Saving enough for retirement is commendable. Saving too much? That can hurt your finances today, making it difficult to cover financial emergencies or pay down high-interest-rate debt. Need help determining how much you should be saving for retirement? Our Rocket Money^SM app can help. It gives users one place to manage their savings and ensure they’re on track to meet their retirement goals. Want to control your financial future? Download the app today.