I find it astounding that anyone would think it’s a bad idea to think about one’s goals before taking action.

“You people seriously can’t be that stupid, can you?…

I’m guessing that you can. Sad. Only liberals would make odd claims like you people are doing and using your “feel good” analogies to make your subjectiveness feel right.

My favorite: “…it is almost elitist to say otherwise…” Spoken like a true liberal.

God you people are dumb.”

@Matt
Speaking as someone who has grown up in one of the most affluent communities in the nation, I have to say that you definitely are a bit elitist. The people to whom you are responding express valid points and belittling them does not make your arguments more valid. I’ve read this entire thread and did not find any “feel good” analogies to make people feel better about their subjectivness. Additionally, I believe that Haruki can have a good, sustainable quality of life on the portion of his income that he’s taking home. He might not indulge in the luxuries, but he certainly can afford the necessities. You are obviously biased, so I would not be casting stones about other peoples’ subjectivity.

Congratulations to Haruki’s savings discipline thus far! But for him to be sure he’s maximizing efficiency in his savings strategy, he would be best served by working with a fee-only financial planning professional.

How does people disagreeing with you here have anything whatsoever to do with “liberals”?!?
I don’t think anyone has expressed any political opinions for you to assume they are liberals.

Your tax + health insurance estimate is high. Maybe people are nitpicking your estimate a bit but theres no need to resort to namecalling over it.

Trent is not categorically saying nobody should save >30% of their income towards retirement. He clearly applauds Haruki for doing this, he says that if you can save a high rate for retirement then thats “awesome” and Trent clearly says that if you want to save extra for retirement and aren’t neglecting other goals then you should do so.

Trent’s point is that its likely someone saving 30% for retirement and making $46k is skimping on their life today. We do not know for sure if this is the case for Haruki or not. Maybe he’s got plenty of disposable money after his savings, taxes and expenses. Maybe he lives in San Francsisco and pays $1200 a month in rent, $250 a month for health insurance, a $200 month student loan bill and eats rice and beans and has no money for any fun or saving for a house. Or maybe he has $1000 left over after all his bill and such. I wouldn’t assume either way but it seems Trent and most people here are assuming one or the other.

It is possible to save too much. Would you save 90% of your salary for retirement and live in a cardboard box? Obviously not. Would you eat beans and rice and live in a crampt studio apartment to save 30% of your income for retirement? Thats not a good choice either.

If Haruki continues with 30% savings rate and you assume a conservative 7% annual growth then he will have a higher income level after retirement than before retirement. Thats saving more than necessary for a comfortable retirement.

If Haruki has a good standard of living right now and has an adaquate emergncy fund, is saving for other goals and has money to spend on things he cares about then he is doing wonderful and should be happy to save 30% for retirement. But if Haruki has high fixed expenses and is skimping and denying himself any nicities then he could cut back his retirement savings a bit, still save plenty for retirement and improve his quality of life now.

Now, THIS… this is a real problem. My goodness, where is the world headed to when you save too much?

“When you finally retire, even if you step away at the minimum possible age that you can access your retirement savings without penalty, you’ll have more than enough for retirement.”

Again, MAJOR problem in today’s society.

“For some, this seems like a problem they wish they would have, but having excessive income in retirement means excessive taxes in retirement.”

Now if that is not an assumption, I don’t know what is.

“In short, if you have a mountain of cash in your 401(k), you’ll be paying more taxes upon withdrawal than you ever would if you were more careful about your life’s financial plan.”

So let’s deal with this one: First, because there is no FIN# talk in this article, we don’t even have an idea of what this person could be withdrawing monthly/yearly. So if the withdrawals are large, yes, much taxes. But if the withdrawals are within a target amount to lessen taxes, then this statement above is incorrect. What about the excessive income that you may leave in the investment that will grow the account even more? Well, if you think that is a problem (as already lead by the initial statement in this article that it is possible to over-save, then beware: re-investing profits will compound this), then you can go ahead and withdraw the excessive amounts and donate it. You won’t get taxed.

“Second, when you hit your “number,””

Great advice from someone who generalizes the most important factor to this whole retirement planning.

“you’ll likely be many years short of retirement.”

Wow. And knowing this without knowing the FIN#, is real magic.

“If you’re saving this much for the dream of retiring early, you might not wind up happy.”

Didn’t realize that happiness was dependant on conditions. I think the writer is just not happy period.

“When you do hit your “number” – the amount you need to have to live sustainably in retirement”

Here is the magic at work again.

“- and you’re much younger than your retirement age, you’re stuck. You’ll have all the resources you need, but they’re locked up. Of course, you can use your Roth IRA contributions for a few years, since you can withdraw your contributions without penalty, but it won’t cover you for more than two or three years.”

Wow… flabbergasted. 2-3 years…. I seriously need to learn how he figures this stuff out. I wouldn’t have to use a calculator anymore.

“The big reason, though, is that excessive retirement savings takes away from your other life goals. ”

What if your life goal is to save excessively for your retirement? Another assumption here which deters people to his type of thinking. Without knowing what the life goals are, how can one make that statement?

“Dropping that 401(k) contribution back to 10% gives you another 5% of your salary – $2,300 pre-tax – to save for other life goals without diminishing the quality of your retirement. Instead, start socking that money away for other goals: a big fat emergency fund, a home down payment, a small business you dream of starting, a vacation, or whatever it is that really makes your life worth living.”

…Because once you retire, life is not worth living.

“Haruki is doing tremendously well – this is not a criticism of his saving habits, which are stellar. If you have the capacity to save more than you actually need for retirement, that’s awesome. It’s not a bad thing.”

I think I was harsh on this writer at the start. He may have needed to write this article first to figure out what he was saying because… I sure don’t! He now says it’s not bad. Yet, quote “For some, this seems like a problem they wish they would have, but having excessive income in retirement means excessive taxes in retirement.”

“Instead, take some time to step back from your retirement savings Think through your life goals and make some serious, well-informed decisions. Here’s how.”

Finally… a method to his madness. Hopefully, he can prove me wrong and make my words look foolish.

“First, calculate your “number.” In other words, figure up how much you’ll need to live on sustainably in retirement. There are tons of different calculators and calculations out there – your best bet is to use several and trust the one that estimates the largest total amount – then add 10%. CNN’s retirement calculator and MSN’s retirement calculator are both useful places to start, but try running your numbers through every one you come across.”

Woe, woe, woe, woe, woe, woe, woe, woe, woe….. WOE! Did you just say “ADD”? As in, OVER estimate, or OVER contribute for what the formula gives you? (Mouth open in TOTAL AWE)

“Next, calculate how much you need to put away each year to reach that goal at your target age. Assume a 7% annual return on your investments, which is what Warren Buffett suggests is the long-term trend for stocks. One way to get a bead on this is to tinker with the numbers on retirement calculators – set the annual rate of return to 7% and play around with the annual contributions you would need to make to get to your target number. This will give you a good savings number to shoot for each year.”

Finally been waiting for something like this. But instead of playing with single digit returns, I was thinking more in the upper double digits… you know 60%, 70%. Then I can shoot for that! Because the funds you pick don’t matter. What matters is choosing your interest rate (first is your “number” +10% as already stated by the writer). I’m so glad I can assume numbers and don’t actually have to look at history trends.

“Once you’re sure that you’re saving enough for retirement at the age you want to retire, target the rest of your savings towards other goals. Save for a home, for a car, or for a small business. Give money to a charity. Our goal is a home in the country with a barn in the back which we want to make as green as possible”

This is not a bad idea. I mean, you do want to live while you save. But you should be careful not to let the “now” compromise your future. It’s easy to justify any goal we have and disregarding the future, thinking we won’t pay for that decision eventually.

” – we want to shoot for near self-sustainability.”

Um, how about full independence?

“We also want to do some serious volunteer work in retirement.”

Sir, Yes sir!

“What if extra retirement savings makes you feel more secure? If that’s the case – and you don’t have any other goals you’re strongly pushing towards – then feel free to contribute more towards your retirement savings. ”

Contradicting advice maybe? Is this about what we feel is right? Or know what is right? Because if we did what we felt is right all the time, wow… we be messed up.

“In the end, it’s worth your while to make sure that, if you’re focused on saving, that your savings are helping you truly fulfill your dreams. Good luck!”

And finally… a point I fully agree on!!!

Conclusion? Don’t take advice unless you see the proof backing it up. Internet is full of opinions stating themselves as fact and experts. Heck, don’t even believe me! Go to a real financial guru and ask to see their personal finances, because any good one will be proud to show it to you. Why is this important? Because you should take advice from someone who practices what they preach. And with that simple advice, make sure that whoemever you pick is leading financially the way you want to. So before taking any advice, get a financial plan done (don’t even dare paying for one)…. oh, and you can’t oversave. But you can overwithdraw…. :)

I am 27 yrs old. Me and my wife together make $150k and we manage to save 41% of that per yr, without having to sacrifice any major change in our quality of life.
Our most biggest expense is rent where we spend around 18k for a nice townhouse. We are planning to buy a house in the near future whose mortgage payments wouldnt exceed our current rent. Then that would mean that we could end up saving another 12%.

Both of us only recently started working so our net worth is only around 150k.

It is important to put the framework in place when you are young to have maximum financial flexibility later in life. Unlike many thirty-somethings, Haruki will be able to change his contributions as his situation changes without affecting retirement prospects.

It also depends entirely on goals. I for one, would love to retire to a vineyard… that’s gonna take some serious coin.

While I can agree that nothing in life is guaranteed, your money is safer from taxes in private retirement accounts than it is anywhere else. The odds of what you suggest could happen actually happening I would estimate at slim to none. Even if a one time tax on retirement accounts did happen, would that justify giving up the benefits of compound interest and tax free growth?

Sure it’s possible for people to make more in their later years. But I don’t think that’s the case for the average American. And the fact still remains, you have control over how much you are taxed in retirement. Withdraw large amounts, get taxed more. Withdraw small amounts and supplement with Roth withdrawals and get taxed less. On the flip side, if you contribute less money to your 401K in the present time, you will be taxed more today. It’s a zero sum game.

As to your final point, nobody’s unique circumstances can be answered with a simple equation. Everybody’s goals and plans are different. Maybe Haruki told Trent something else in their communication that warranted the advice to ease up on retirement savings. But that information should have been presented.

Consider that our country is now waist deep in deficits, accompanied by rising demand for funds for the Baby Boomers who are now entering social security and soon medicare. There are a few trillion dollars sitting in tax sheltered retirement accounts–are we 100% certain those won’t be subject to a “one time (until next year) tax” to cover a funding problem? I’m not as certain as you that those accounts will be sacrosanct in a money grab.

Also, Trents point of possibly being in a higher tax bracket in retirement is hardly off base. In the years I’ve worked in public accounting, most of the really high income earners were over 65. I know this doesn’t fit the stereotype of the elderly, but years of experience in running businesses, the wisdom of operating with a strong balance sheet, and the absence of dependents often sees people making more money than they ever have late in life.

I know the financial media reduce retirement planning to a neat math equation, but real life doesn’t always cooperate with theories and equations.

I hope this makes some sense as a counter position.

Different ideas is one thing. But giving faulty advice is another thing altogether. Trent has crossed the line of sharing his experiences with others to giving advice to individuals that only a registered investment advisor or other financial professional should give. And we have seen in this comment section somebody is paying attention and acting on this faulty advice.

There’s just no way around it. Anybody who is living comfortably while contributing the max to retirement accounts should not be encouraged to do otherwise. No other investment vehicles offer the advantages of retirement accounts. And if a person gets away from contributing the max and gets used to the budget without contributing the max, it will be very difficult to go back. Human behavior is another factor that Trent very often ignores. Even if it were ok to ignore the tax advantages of retirement accounts, compound interest, etc. very rarely when somebody scales back retirement funding do they continue to save the difference in other responsible manners such as investing in “dreams” as Trent put it. Unfortunately most of the population is just not disciplined enough. The money gets spent on eating out, impulse items, etc. etc. Funding retirement accounts keeps the money out of site, out of mind.

Also notice that Trent says that the money saved by scaling down will be $2300 pre-tax. This is correct, but deceptive. He should quote what the figure will be after tax. Because you will be taxed on that money now or later. Also it is just flat out wrong to infer you will pay more taxes at retirement by saving more money in retirement accounts. You aren’t going to be taxed anymore by saving the money in a retirement account or taking it now. The only difference is when you are taxed. It should also be mentioned that often in retirement you are in a lower tax bracket. This isn’t the case for everyone, but typically income is reduced at retirement which often means lower tax bracket. Also, if you draw money from the taxable 401(K) and the tax free Roth you can really limit how much of your income you will be taxed on. e.g. You draw 30K from 401K and 30K from Roth and you are only taxed as if you earned 30K in that year.

Last, but not least contributions to a Roth (at least the last time I checked) can be withdrawn tax free before you reach retirement age. So if anybody saving extra wanted to take some of their retirement money and invest in a dream or opportunity, they could pull the money from the Roth which has been growing tax free.

I’m not trying to be negative here. But when I see poor advice being given, and people acting on it, as a former financial planner I really have to speak my mind and hope people are listening. But I should also add, I have not been a financial planner for 5 years, so what I said shouldn’t be taken as gospel either. For important decisions on retirement accounts, one should seek the advice of a registered investment advisor.

Personally, I enjoy the give and take of these discussions.