It’s fairly simple to calculate if you are saving enough for retirement. A bigger challenge is determining whether you are actually saving too much for retirement. If you already have an emergency fund, put a good amount of money into your pre-tax and post-tax investment accounts regularly, and are on the way to financial freedom, do you continue to save all your pennies? Or do you ease up on saving a bit and enhance your current lifestyle?
In theory, as long as you are saving enough money to reach you day-job-quitting goal, you can spend the rest of your money however you see fit. In reality, though, I think you should keep investing full steam ahead. Here is why you should continue to save, even after you max out your retirement accounts.
Plans do fail. You can have the perfect retirement plan, but the minute you get laid off, your whole plan falls apart. What if the stock market crashes right before you retire? Retirement plans are necessary to help guide us, but no plan is ever foolproof. Make sure you have a backup plan.
[See Retirement Ages to Plan For.]
You can always inflate your lifestyle later. The question of saving too much usually comes up because you want to justify a new purchase. It is tough to have to deflate your lifestyle just to make ends meet later in life. But it is unlikely that you will have too much money in the future. If you do end up with a multimillion dollar retirement nest egg that you will never be able to use at your current consumption rate, it's never too late to start enjoying life.
Pass on money to your children. In many cultures around the world, leaving your assets to heirs is customary and celebrated. Some parents live frugally so they can leave as much as possible to their children.
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Donate to charity. Follow Bill Gates's and Warren Buffett's lead and donate most of your assets when you pass away. You may think it's not nearly as important as that HDTV you want to buy this holiday season, but what if your contributions lead to research that could save your son's life?
Money is powerful, but it's not nearly as powerful after you spend it. You may want to take a break from saving for retirement. But unless your spending is low compared to your savings and income, I suggest you to keep charging ahead.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.