What is "saving enough"?

[feh]

That's pretty much what I do.

The thing is I could be more frugal or less frugal. I didn't establish a target retirement date and work towards it, my target retirement date comes at me as a result of my lifestyle.

I'm just wondering if people work it backwards or frontwards....or not work it at all and just save by nature (my inlaws are the latter, save compulsively as a way of being).

Other than retirement, does anyone have as a goal to save significantly above retirement needs to accumulate "family wealth"?

We've done the same thing - saved as much as we can, without a true goal. Everything is lined up for an early retirement in 5-10 years.

It is entirely possible we may have much more than we need to spend in retirement and will be the source of "family wealth" for future generations. That concept does appeal to me.

[thekid]

We've done the same thing - saved as much as we can, without a true goal. Everything is lined up for an early retirement in 5-10 years.

It is entirely possible we may have much more than we need to spend in retirement and will be the source of "family wealth" for future generations. That concept does appeal to me.

My in-laws did that. Accumulated some $7M in net worth they want to distribute to DW and her brother (no gift or inheritance tax here). As far as I'm concerned, that doesn't affect me. What we want to do with it is "grow it and pass it on", teaching our daughter from a young age to be responsible and not take it for granted. Hopefully it works. My wife has grown up very responsible and hard working, her brother is self-entitled, lazy and wasteful. Hopefully, we can raise kids that will recognize opportunity to build rather than mindlessly waste.

We both work good jobs and are on target to be able to retire in our 50s from our own work and savings. I just have a bit of a hard time targetting the right savings/spending level. Every once in a while we'll encounter a house we really like, a car we would have liked, a vacation that would be really nice and so on and we pass. At times, I fell like we already spend too much and could do much better, at others I wonder if we are not saving towards the future too much (we do only live once for an approximate 80 some odd years, think we should plan in a way to maximize what we want out of it). Overall, I fell we're ok but I'm not sure what to base that on.

We talk about savings here. I think it's important to also talk about the goals. I really like the input here.

[Nika]

To me, saving enough is:

1. Contribute to 401K at least to the point of match
2. Max out ROTH IRA for both spouses each year
3. Max out ESA
4. Have a good EF (at least 6 months)
5. Than invest something, on a regular basis each month, it does not have to be much, but the point is to have an account grow bigger from year to year.
(Have "temporary savings" - such as money allocated for vacation counted separately)

[thekid]

A bit OT, but what are the permitted amounts of tax sheltered savings in the US per year?

In Canada you have tax deferred retirement savings maxed at lower of 18% of previous year's income or 22 900$ (for 2012). I get most of that space "eaten up" by the equivalency factor on my DB. Also, we are allowed a contribution limit of $5k per year to a "tax free savings account". This is not tax deferred (it's not deducted from your taxable income for that year...you pay taxes on the $5k when you earned it), but all returns on that $5k are free of further tax.

[ecoadapt]

This comes from a book by Elizabeth Warren. It is 50% for needs, 30% for wants and 20% for savings. I think that is a great baseline for everyone. If the entire country was doing that, the vast majority of financial problems we face wouldn't exist.

I'm doing this 50-30-20 so far I would say that I'm doing good. This is good way to keep tab of your budget!

[LivingAlmostLarge]

If offered 17k 401k, $5k Roth/Traditional/Nondeductible IRA, SEP-IRA is 25% of income to $10k I believe, and $2k ESA.

Saving enough? I have no idea. We save whatever we can in retirement accounts, live on the rest. Save what we think for long term and short term as well and don't go into debt. Hope it's enough.

[kork13]

I've had to figure out the "what is enough" question over the last 2 years or so... My salary suddenly rose (due to COLA) to a level that allowed me to save nearly 50% of my income if desired/required. I did that for a while, but gradually came to realize that it really was "too much" (as in, I could feel it impacting how I live). So I shaved it back to 40%, which is more comfortable. When I move back to the states this summer, my income will drop down again. I like the 50/30/20 guideline as well, though I'm aiming for 50% needs, 30% savings, 20% wants.... just because I'm naturally frugal, so that lines up better with my lifestyle.

[cschin4]

Saving too much is a detriment to one's life as well. There has to be a balance in living for today and planning for tomorrow. Yes, too many people are probably living for the moment and not planning. But, in the end, if you dropped dead today, would you had rather you had some fun, took some vacations, bought some fun things you enjoy, donated money, etc? I think so. And, i have a new perspective on this as my mom has recently taken a downhill turn and into Assisted Living. She can't do what she used too. And, i think she could have spent more and had MORE fun cuz now the state will take all she has and it will be gone and she will be no better off than someone who didn't save and plan. Fortunately she did do a lot of fun things and took a big trip to Hawaii a few years back so she has good memories. Do things while you can and are able. Enjoy your life. Enjoy what you have. But, also save some for tomorrow cuz you never know. How much to save? Well according to experts it is such an astronomical amount that most people would be scratching and clawing and saving every dime.

[thekid]

Saving too much is a detriment to one's life as well. There has to be a balance in living for today and planning for tomorrow. Yes, too many people are probably living for the moment and not planning. But, in the end, if you dropped dead today, would you had rather you had some fun, took some vacations, bought some fun things you enjoy, donated money, etc? I think so. And, i have a new perspective on this as my mom has recently taken a downhill turn and into Assisted Living. She can't do what she used too. And, i think she could have spent more and had MORE fun cuz now the state will take all she has and it will be gone and she will be no better off than someone who didn't save and plan. Fortunately she did do a lot of fun things and took a big trip to Hawaii a few years back so she has good memories. Do things while you can and are able. Enjoy your life. Enjoy what you have. But, also save some for tomorrow cuz you never know. How much to save? Well according to experts it is such an astronomical amount that most people would be scratching and clawing and saving every dime.

I agree. For most people, the question doesn't much apply. The answer is simply that they need to save more as base retirement needs are not being funded. But for savers, the question is very important I think. What do you keep for the now and what do you keep for the later and how do you go about deciding in an rational manner. I think you have to start by setting your end goal and then actualizing that into savings rate needed to attain based on fair assumptions. You try one simulation, say retire at 60 with x amount of pre tax revenu (net of other retirement income). See what the required savings rate is to attain that taking into consideration inflation (both on your savings and on your wages) and fair market returns (I like to go conservative at around 5-6%). If that savings rate is too high to maintain an adequate lifestyle now, push out your retirement age. This way you know what you are trading (x$ extra spending per year now is costing me x years of extra work past 60) and can make a reasoned decision on whether or not it is worth it.

If your goal is to retire early, then you have to adjust accordingly. Even more so if your goal is to build family capital for the kids.

I'm bringing this up because savings and money management discussions can't meaningfully take place in a vaccum. What you should save now depends on what you want later. It depends on your goals.

[Joan.of.the.Arch]

But cschin4, the state will not be taking her estate because she saved too much money for herself. The state will be taking her estate because she did not (or could not?) save enough money to provide for own her care in old age. She will just be paying for her own care to the extent possible.

This is one of the reasons my spouse and I save hard and pay for insurance. I do think it is right that as a society we take care of those who cannot take care of themselves, but I think I've got to do my best to take care of myself, even to my last days. I bet your Mom had that in mind, too.

The kid-- what you are saying about your seemingly backwards way of getting at all this? Well, really I think that is what my husband and I have done. We did not have definite thoughts about goals when we were young, but we had thrifty habits and just kind of knew in general that things happen, life is expensive, you can't always count on jobs, and that you'd better be prepared, save money. For me there was baseline fear of poverty so I was very motivated. My husband did not have that thought haunting him, but he too was always very responsible with money.

We are now closer to the end of the earnings and savings period and I feel pretty good about the situation. Life is good.

[sandrark]

I like the 50/30/20 model too, but we invert the "savings" and "wants" percentages:

50% needs
30% savings (short term savings, retirement and ESA savings, plus charitable giving here)
20% wants

It works very well, in general. We feel like we're saving "enough", and giving to others as well, which means we don't feel guilty over the 20% spending.

In recent years, we've upgraded our home (but put down a 30% down payment), and taken a couple of spectacular trips. We've also maxed out Roths, 401(k), and invested in DH's business, while assisting my widowed mother and savings for our nieces' and nephew's college accounts.

For us, GIVING to others was the key - if we're able to save substantially while giving to others and having some fun time? THAT is the real "balanced money formula" we were seeking.