3 Signs You're Saving TOO MUCH For Retirement!

three signs you're saving too much for retirement it's brian preston the money guy yeah brian i'm super excited about this show because one of the things that we always talk about with folks or at least one of the things people always think we're going to talk about is you should be saving more money you should be saving more money time to save more time to get serious time to start putting it away start now start now start now but there is another side of that coin there are folks who maybe need to have a recalibration about what they're doing and why they're doing it and how they're doing it and that's kind of what we're gonna talk a little about today there is a such thing as too much of a good thing if i think about look we pick on that um there are folks that they pay off the credit card debts and they go just hog wild with now they want to pay off all their low interest debt including their mortgages not necessarily the best idea the same thing can happen with saving and investing money where you take something that is a very positive behavior but if you do too much it could have some negative consequences and we want to cover that plus we want to tell you because we're going to give you guidance on how much you should be saving and actually share the math that's all coming up here in the next few minutes so before we talk about this uh before we jump into like the signs we're gonna do sort of a lay of the land sort of a state of the union of the current status of savings in america because would you say brian off the cuff just general question here that by and large most folks are saving too much for retirement no i i know too much we've seen the stats the typical american is horrible at saving and investing um you would think even through this pandemic where we've seen saving rates actually increase because i mean i think a lot of it is just because of lockdowns inability to travel and other things that it caused people just to spend less it's still not reaching what i would consider ideal yeah right now if you look at u.s personal savings rate since 2010 so this is over the last decade which has been a good one you know if you think about it there hasn't been like a ton of downturn volatility as it relates to the financial markets average savings rate since 2010 is only eight and a half percent that actually includes the elevated savings from the pandemic i think if you were to drop that off it's only a little above seven percent or so for the average american and anybody who follows our content for any period of time you've heard us mention quite frequently our goal for you gross income meaning before any deductions we want you to saving 20 to 25 of your income and like i said in a little later in the show we're actually going to share the math that goes into that so you can go do those guys just make that number up we actually give you the details and show you the receipts so um if the question is uh so if we talk about 25 percent um brian would you say that there is an upper limit like like you should not save more this is there should you put a governor on how much you're saving meaning can there actually in fact be too much of a good thing when it comes to sex yeah and i kind of hinted at this earlier is that there is i think people get so excited especially once you start seeing indications that your money's working for you once your army of dollars start generating income capital appreciation you can get addicted to it and and it's one of those things where you're excited that you're building financial independence but what i worry is that there's a fine line between financial mutant and then financial miser and a miser and that's what we're talking about today is and this is the important of planning knowing your why knowing why you're saving and investing this money so that you don't miss out on life that's the big part that i'm worried about is somebody taking something that's such a positive activity of saving and investing and just doing too much and then having regrets later so as we go through these today you want to do a little bit of a self-assessment because uh financial mutants most often we are talking to you these are traps that potentially you could fall into so let's jump right into the first one we're talking about the three signs that you're saving too much for retirement number one on our list is you're only living for the future now bo i can't take this line because so i'm going to make you say it because i was like i mean this is it's not a dead joke but it is so cheesy i mean it is dripping with but i wanted to make sure you got credit for this line go ahead and hit them with pre-show prep and it just kind of hit my head and i said it out loud and i couldn't pull it back fast enough but as we're coming up with this idea i said you know today is a gift that's why we call it the present and then there were jeers and all kinds of stuff in the moment you make that up or yeah i'm sure maybe i heard that in a home in a book somewhere but i didn't come up with that but we've heard it over and over and over again there is something unique about today about getting to be here in this present moment that sometimes folks that are super future minded we forget about and we ignore well and that's what i think if the vast majority of people and that's why there's even a group of people that have come up with a catchy thing of yolo you only live once um and typically we talk about discipline we talk about why you have to have deferred gratification and those things are on opposite sides of the spectrum from that you only live once but their limits guys i do worry about i completely worry about people understanding that abundance and having that abundant life also means you do have to create experiences you have dude need to create your best life through your 20s through your 30s through your 40s because if you're doing everything for the future you might have some regrets and it's it's not only from missing out experiences but i'm unfortunately as financial advisors but we deal with clients that have done this where they've saved save save you get in your 50s and 60s have a health crisis and then you're like what was it all for yeah and so i want to make sure you you keep your perspective understand your why and also stay very healthy so you do get abundance you get memories you get experiences and but you also have plenty of money for the future one thing i think that was so helpful for me and i would encourage uh all of you out there who if you are goal oriented and you're an achiever and you're a pusher and you're someone who really wants to continue moving towards the next thing i would really encourage you find a mentor who's a few steps ahead of you find someone who's done the things that you've done but they've did it a while ago right so brian i want to give you a huge compliment you have echoed this to me over and over and over throughout my career early on in my twitter i said well you hey you're in your 20s you know you want to be so serious why don't you enjoy why don't you hey bo you just got married stop trying it's okay to hey you just had kids it's okay you keep reminding me stop and smell the roses enjoy this present season because while it may not sound as exciting as being in your 50s or in your 60s having millions and millions of dollars there are some sweet things right now that you can't go back to and you just want to make sure that you're not so blinded by your goals or the achievement you want to make it to that you missed that and so you have been just a huge voice for me bringing me back back down on that well i recognize achievers go through mental checklists where you're like hey i want to make a hundred thousand dollars as soon as possible i want to have a million dollars by this date i want to have 5 million by this date i want to own a house by this date you know so it's not uncommon that successful people you're setting healthy goals but you can also become so just laser focused on that issue that you become absolutely miserable to be around you also blind yourself from experiences and look i want you to have that focus i want you to be disciplined we talk about all the time but make sure you know the limits you understand the why because there is a healthy balance and another thing brian there's actually a practical application or practical implication of this as well and we see this all the time folks that are really great savers but the way that they save is they max out the roth ira and they max out the 401k and they do that and they do they do do that and so their retirement pot their future money is great but what they don't have or what they've not thought about or not planned for is what about that goals that are like one year away or three years away or five years away i feel like we see that over and over yeah we call that retirement rich and you see this you see this especially i feel bad for the 30 year olds especially i kind of expect when you're in your 20s there's just not a lot of money laying around so it probably is going to end up with your savings goals you even see this with the financial order of operations that you very well in your 20s could end up with lots of 401k roth ira assets and it's just that's good practice just to go through the financial order of operations but there is going to come a point where you want to buy that first house where you want to kind of start spreading your money out and it really does typically happen in your late 20s early 30s sometime in there and if you're not careful if you get carried away with your savings and not making sure you have access to liquid assets you can find out that things that are actually are negative to your financial life like car purchases you don't have the liquidity appropriately and then i see this also all the time too is that i have actually experienced clients that have seven figure retirement accounts but can't pay cash for a car or can't do a home renovation or home repair where they put a new roof on their house because all their money is locked up into retirement accounts that are essentially put away until they reach 59 and a half to 60 years of age now i know when i was a much younger person i said yeah brian i hear you but man i no i want to be saved and i want to get to my 25 i want to be saving 40 i want to do this i wanted this if you are a young person out there if you're someone who is in your 20s or your 30s or even still if you're in your 40s one of the things to keep in mind is that if you can stay disciplined it does not take a lot to end up with a lot so this idea of i can't do things today i can't go to starbucks i have to save every dollar that may not be true because the longer your timeline is the more kind the numbers are to you over the long term yeah and i want to give one piece of advice that i think because i don't like to just poke holes in people's plans i also want to give you corrective actions write down what the next one to five year big expenses are for you and then i want you to compare what your saving strategy with the financial order operations are and see how that all fits in together and as long as you can check the box and go okay i've got the house down payment covered i've got that next car i've got all that type of stuff covered you're going to be okay so write down the one to five year goals make sure they fit into your retirement savings strategy and you'll be okay so if you're if you're new to the show or perhaps you've not seen this before let us show you just how powerful your dollars can be given a long enough timeline so if we want to talk about how much would it be how much would be required for you to become a millionaire by the time that you get to age 65 and what we're going to assume is that as you age your risk tolerance decreases so your rate of return increases so we'd assume a 20 year old can make a 10 rate of return and then a 21 year old can make a 9.9 and then 9.8 9.7 not all the way down until you get out to age 65 how much would you have to save every month in order to be a millionaire by the time you get to 65. uh well what's really really exciting is if you are someone maybe you're in college or just got out of college and you're listening to the show it only takes you 95 a month to get to millionaire status by the time that you retire that's so exciting if you wait until 25 it still only takes about 158 dollars a month i'd argue that's very very doable if you wait until 30 and you have start at zero and you want to be a millionaire by 65 you've got to save about 270 dollars per month to do that at 40 the number goes to 780 dollars a month and then if you wait till 50 to get started right if you wait all the way until you get out to age 50 say you know what oh man i've not been paying attention now is the time i've got to start it does become a lot harder now you've got to start saving 2500 a month if you want to get to millionaire status by the time you get to 65. but i actually think that's kind of encouraging brian because one of the things that happens as you get into your 40s and into your 50s it's likely you're getting into your higher earning years right you have more ability to save maybe some of those messy middle 30 things have fallen off what i think is really incredible is every 2500 dollars per month that you can save starting at 50 will be another million dollars in your retirement portfolio that is just how powerful your army of dollar bills can be for you we typically use this chart to motivate because i want everybody to know every dollar when you're 20 years of age has potential turn into 88. every dollar when you're 30 years of age has a chance to turn into 23 so that's very motivating but there can be and i said this earlier too much of a good thing i want you to look at this change your perspective a little bit is that i want you to know yes this is motivating to know every dollar is so powerful but it also should be freeing to you to know hey it's okay because a little goes a long way the goal is not to be a 20 year old who saves all the way to 65 spending as little as possible to save as much as possible so then you can live a horrible restrictive life in that 45 year period but then party it up once you're 65 or greater because you might find that each decade of your life had a special sweetness had a special thing that makes it so good to enjoy that you need to find that balance so don't let this motivate you to the negative use this as a tool to know what you need this is why we talk about planning is so important in the process so that you can know what's just enough and you know so that you get into that goldilocks situation that's what i want is i want you to get more than enough but not so much that you've missed out on so much of life now again one of the beautiful things if you don't have a chance to hang out with us live we record these shows live and there's a chat going right now and one of the people say oh no you can't save too much for retirement brian if you if you just save too much early you can just retire earlier you could remember these are signs that perhaps you have an issue and one of the signs is you're only living for the future so even if you are a fire person right even if you are someone who wants to retire really really early in your 40s i would make the argument you can still accomplish that goal without sacrificing everything now because you only get to be in your 20s one time yeah you're only going to be in your 30s one time so make sure you're just doing an assessment to make sure you understand why you're making the decisions that you are making yep so that leads to because you can never say too much might be a little strong and the fact that number two is your relationships are struggling yeah this one uh this one i think is set i mean it's obviously sad when someone isn't living for the present and they look back with regret but this one i feel like makes me really really sad because we see this happen so often in our country and in the folks that we interact with and people we hear about the talks about their finances it's a big deal yeah and don't take our word for it i mean the research shows that the biggest issue a lot of families deal with when you're talking about spouses is just the financial decision making you know and you can see right here on the screen we have 36 percent of a married american say money causes the most stress in their relationship and so and again that's so sad because i think about when it comes to like personal finance and cohesion i get excited thinking about how that works inside of a marriage or inside of a family because remember ultimately money is just a tool to allow you to do the things that you want to be able to do and so what's so great is when you have spouses come together say hey what do we want to do what are our goals we want to be able to send our kids to college we want to be able to retire at this age we want to go on this trip we want to travel it should be something that gets excited that brings the family together but unfortunately that's not the case it often is something that divides and causes issues uh inside of the family let me give an experience share for how this manifests when we talk about you could be saving too much could be impacting your relationship because a lot of you guys are like look if you're a hyper saver if you're a financial mutant you're actually going to have more assets so probably fighting's going to be less this should be a positive thing that's true but let me give you the negative side is that i actually had a someone i know who approached me because they they know obviously no we're we're in money all the time and they said look um my spouse is considering leaving me and i said well what's what's going on he goes she said one of the primary reasons that that is just irks her and it's turned into a major issue as i still have her give me receipts and what's if you were just what's the like um social economy these is this a couple that's doing okay yeah they're doing fine but i think like i said financial mutants and you know we'll typically we we sometimes we can get too carried away with too much of a good thing so you the things that realize when you're in your 20s and 30s and you're trying to get to building the the healthy habit of saving and investing it probably does make sense that you're doing traditional budgeting where you're watching every dollar that comes into the financial household and you're making sure it fits into your plan but there will come a point and i talk about this is that you graduate from budgeting to more of a cash management plan where i'm hoping that more of your money is just automatic for the people and the fact that you've got your savings strategy automated you've got all the money going into the right buckets at the right time so that you don't have to ask your spouse or loved ones to give you every single receipt because what was great in your 20s to create a healthy habit might turn into that pet peeve that actually separates a relationship because you're trying to make sure you're not getting too many lattes you're making sure they're not spending too much when they go to the convenience store and fill up the gas tank and then pick up a bag of combos i mean this is the type of stuff it's that little teeny tiny stuff that can fracture a relationship and that breaks my heart because money can be a positive tool if you know what its why is but don't let the good habits of budgeting turn into a dark thing that actually divides the relationship yeah i'll share sort of a personal experience that and i learned this firsthand and it's something that i've had to like practice to get better at uh when i bought my very first house i bought it super super young and i was super tight and i was focused on saving and not other things and so uh when i bought that house i went to home depot and i bought the eight dollar paper blinds you know the ones i'm talking about where you put the adhesive up and it's just like an accordion of like tissue paper that comes down uh and um you know my wife and i we got married and that was our house that we ended up living in and she was like hey uh are we gonna do so i was like no we're not gonna do that those blinds weren't perfect why would we change this so we kind of progressed in our marriage and uh we ended up moving from georgia up here to nashville and we were looking for houzz and stuff and and she said hey i want to have a conversation and i was like okay yeah sure she goes i really want us to buy a house and i'm really excited about us talking about starting a family and doing all these things but you recognize like one of the things that's important for me is when we buy a house i really care about it feeling like a home so if we're going to like do this are you going to be okay if i want to buy blinds and i want to do window treatments i was like blinds i'd go get you everything for 40 bucks so we can have all the windows covered i had to realize that her goals and what she found fulfillment were different than mine and that was okay i was not going to force her to uh to conform to what i thought was right because i thought window treatments were a waste of money or whatever it was i thought i'm finding myself being highly entertained here because i'm thinking about because i know your wife and i and i know you know now what's funny is you're bougie now but but back then you're probably more of a spartan and then i get a visual of you know how when you go to like mexico or some other places the furniture will actually be poured into it's like concrete like bed frames concrete couches i have a visual of you with your paper blinds and when they're building the house just be like hey can we just go ahead and just pour some chairs there let's make this i love it you know but it is one of those things where that is a solid experience here because i do think your life evolves and it's important to understand because communication we all know anybody who's been married for an extended period of time or has a significant other because there are people who comment all the time saying don't get married it's horrible and i'm like there was obviously something good communication you need to understand because i think marriage is outstanding as long as everything is lined up and it's working out appropriate now look i know there's outside stuff that happens but make sure it's not you tracking receipts or doing something that's a positive thing initially that turns in and manifests into something completely negative pay attention to that stuff now marriages aren't the only type of yeah we've talked a lot about the marriage that's not the only type of relationship that can struggle if you're too focused on saving for the future saving for retirement you kind of fall into that miserably i'm going to argue that it can affect your friendships in a in a pretty big way yeah i mean look i'm not talking i understand when you're in your 20s we're all broke yep i mean most of us are broke so it is like that friends episode where you go out to eat and you order the the bisque you know like some tomato you know soup and you're like okay man my dinner should only be 12 bucks but then you've got yourself up this is your buddy or you know well you're going to a nice restaurant that's nice that's what i'm thinking about is yeah i remember you go to a nice restaurant and you're like i'm going to trim this thing down maybe i'll do a soup maybe i do a salad and then you know i'm gonna you pregame or do whatever because you can't afford drinks that but you have a buddy who's doing the appetizer they're doing the surf and turf they're like bottle for the table i get when you're in your 20s that you might on ticket splitting especially that's going to be tough how will this been you're like oh we want this on 13 separate tickets but but i will tell you as you get older and i think this is interesting how it transitions there will come a point where as you start having success that you become more i feel like it just happens naturally you become more generous where you will buy a round of drinks for your friends or maybe instead of y'all worried about who ordered what you'll just split the ticket evenly um and i'm saying there that you have to know where that level is but my point and my advice on for this show on on saving too much is don't be the miserly friend that everybody knows is super tight and saving but you never buy that round a drink for your friends not because you're worried about paying your mortgage or your rent but because you're just tight that's right because i think that that can have an impact on relationships be healthy about it but just make sure you're checking yourself to make sure hey am i doing am i treating others like i want to be treated because i got to tell you the older and more successful i get that whole adage is of it's better to give than to receive there's something about abundance in the fact that you being able to do things for others that i think can be even more powerful as long as you've checked the boxes on all your financial order of operations who cares if you're spending a little bit extra to do something for someone and look again this is sort of a personal experience share you know early on in my 20s i was known as the tight one like i was known in my group as oh you know bo he's so tight you know squeaks when he walks and i didn't love like right like i didn't like people thinking of me that no i was making wise decisions that sort of thing i kind of like now that it has changed a little bit they know that hey if we go okay yeah beau might he'll probably pick up the you know pick up a round of drinks or you know i just or or even if because you know i'm a water drinker right like i i just struggle with like ordering sodas or whatever when i go to restaurants uh if we're you know if we even if our meals are equally up we've got another couple i'll just say hey let's just split down the middle and that's okay now i like that i've been able to transform into that instead of still being tight wide bow that my friends remember from early 20s i do have one exception that i still tight wide ways have not gone away from me i don't mind splitting tickets evenly when i go out to eat with other couples but there's one thing i don't even care if you order the nice meal but the fancy bottle is a wine oh yeah oh my goodness especially because if you're not drinking the wine you're like i didn't order that i don't want to that's the only exception to this so if we all go out to eat now i'm probably gonna have everybody order like the the crazy expensive bottle of wine because they know that this it's not that you're gonna get me yeah it bothers me a little bit all right so okay so number one was you're only living for the future that's one sign the second sign was that your relationships are struggling here's a third sign that perhaps you're saving too much for a retirement and you should reevaluate and it's that the lines between needs and wants become blurred and you have difficulty difficulty defining those two camps yeah i mean in traditional america where we're not good at saving money it's it's not uncommon that you'll see people they don't save and invest because they're wasting their money on having the nicest iphone they're wasting their money by buying the fanciest car that they can afford the car payment not thinking about there's a balance sheet component meaning the debt and the depreciation that's going on with that vehicle i get that but what we're talking about here is that there's some individuals that get so excited about saving and investing the money that it's not that they're taking and going and consuming the resources it's that they they're avoiding things that as you go through life you need to be checking the box on to make sure that you're safe healthy and things are going well in all aspects of your life that whole 360 view gets excluded by certain individuals and bo give them some examples of what we're talking about yeah like i i i see this all the time especially with folks in the messy middle right because they're so focused on building so folks don't say i'm like oh great hey uh do you have any uh life insurance life insurance i'm not gonna die i'm in my 30s why why would i spend that money when i go invest i'm like no no that's that's something you need to have or i say hey congratulations on the new baby have you all had a conversation about like getting your state documents done and estate documents that's for like my grandparents like no no that's for you and then well how much does it cost i'm like well you know it's going to cost a couple hundred maybe a couple thousand dollars depending on your circumstance and like oh no way why would i ever i'm like guys just because it costs money and there's not an immediate roi on those dollars it's something that you absolutely must do but i see people that get so tight and so focused they can't pull back from that and they can't not do those things that they absolutely should be doing they don't recognize that those types of things life insurance or estate documents those are no longer like wants discretionary decisions i would argue that for the sake of your family those have now moved into the need category those are things that you should have in place to make sure that you protect your loved ones you talked about life insurance you talked about state documents you need those things i'll say it's also about like health insurance oh yeah i have i have um we have fortunately we are large enough we have health insurance here at the firm um but i i have had in there i've i've seen cases where people who are so excited to be funding their roth ira but to the detriment of having health insurance any type of health insurance that scares me because i'm like man that is because why do we when i talk about the financial order of operations one of the reasons i tell you you need to have an emergency reserves for step four or deductibles covered in step one is you're trying to keep your financial life out of the ditch you're trying to make sure a thing that was unaccounted for or an accident or something breaks down doesn't put you in a situation that you have to make tragic horrible desperate decisions i worry about that for people who are thinking hey i'll save by not having any health insurance i'm in my 20s and 30s what do i need health insurance for and then that being the thing that derails your financial life it gets scary to me you know i'm going to give another sort of personal experience share here i don't know why i'm so self-deprecating today but you'll like this one brian uh i figured out a hack when i was a young man uh before i got married is that uh publix used to sell buy one get one boxes of cereal right so every sunday night uh i would before the week start i would go to pulse i'd go buy like 16 boxes of cereal right i only paid for eight of them is it really six sixteen boxes it was like 16. what is the most boxes of cereal you think you bought at one it had to be uh somewhere but in the high teens to 20. yeah because i mean i just load up because that so what i would do is i would eat that for every meal you know i'd have breakfast and then i was like this is incredible i'm grocery shopping for like 20 bucks a month right or whatever the number was well then we got married and i was like sweetheart have i got a deal for you look i figured out how we can save so much money and she said hey you realize like just because you're buying like uh honey nut cheerios and the commercial says that it's like a heart-healthy thing that's probably not healthy that's probably not good for like your long term and i was like oh yeah you know what maybe that's right at that stage in life it was no longer it now became a need that hey maybe i should start focusing on eating a little bit healthier and not just focus on consuming whatever the cheapest food i could put into my body i think that's something that matters and something that again you have to kind of assess am i am i making a long-term bad decision for a short-term savings win yeah i mean because yours your case was cereal i know people and look i've been guilty of this too the dollar menu at that restaurant yes that's cheap you couldn't go make food for yourself for two dollars because but that's not healthy in the long term and it will catch up with you that's what i think once anybody who kind of realizes i want to focus on their health they want to focus on the long term with what they put in their body because it is important you find out eating healthy is expensive and that's why so make sure you understand what the cost of doing things appropriately is a need more than an excess thing just so you can make sure you max out your roth that's something to pay attention and i'll kind of close it out with something that always surprises me is people who are willing to now look if you repair cars on the weekend and you're great and you and it you know if a car pulls breaks down on the side of the road on your way to work you just whip out a you know the a thumb tack or a paper clip and you go and repair it all together right there more power to you but i think there's a lot of folks out there who you know you're not as handy i'm one of them i'll raise my hand but i've got to have a vehicle get me to work every day don't put your job in jeopardy don't put your your spouse and the children in a car that's not safe to drive across state lines just so you can save a few bucks so cars are horrible to your financial life but there is a balance between jalopy that's going to break down and potentially cost me my job and saving for the future safely with a car that gets me to work every day think about those things and i would argue that uh as you age and as your life circumstances change the difference in needs and wants change i would argue that once you have a family the type of vehicle you drive and the reliability of the vehicle to save the vehicle becomes much more of a need than perhaps it was when you were in your early 20s you have to make sure you do a self-assessment because sometimes your your needs have to mature just like you have to well i don't want to this is going to go beyond needs this is more of the cynical view of once you reach a level of success i think we talk about this for retirees all the time it is hard to go from saver builder of wealth to now consumer of wealth and but i and and look being a financial advisor being coming from a public accounting background i'm always amazed at how many people who create legacy wealth and still live a very miserly life even into retirement and i always try to give them a little perspective because there's a balance here once again everything is about the balance but i have seen experiences where you see the family that created a business created multi-generational wealth and they're still living so tight meanwhile the kids and grandkids are sitting in first class they got no problems and this is the y'all know the stats i give it all the time to have a stat like first generation wealth meaning having a million dollars or greater typically eighty percent are first generation creating that the only way you can have that stat is that by second generation 70 have squandered it by third generation that number is 90 meaning we've replenished we've gone ahead and pushed us through so question yourself once you've reached a level of success that you're no longer stressing the system because ask yourself should i do this because your kids will have no problem spending your money i've had clients come to me where they have a farm or they have land and then maybe they have geese or other things and they're like yeah i mean my legs starting to hurt and i'm like maybe i should buy a gator but i just don't want to spend the money i'm like go buy the gator go buy the tractor go buy what makes your life easier because your kids will have no problem spending that money your grandkids won't you might as well figure out what's the balance what's the utility of making sure what you've created is actually getting used appropriately all right brian so one of the things that uh we always say on the show one of the things we always talk about is that when it comes to saving when it comes to building when it comes to how much you should do our goal for you is always to save 25 and a lot of people ask us hey how'd you guys come up with that why is that a thing you said so we want to answer the question why do we suggest you should save 25 and if you do that what does that end up looking like for you later in life well i mean and look this comes from several different things but we're gonna actually show you the receipts give you the math in a minute but if you remember forever i mean if you go read books like the wealthy barber and so forth they'll talk about hey if you can save ten percent you're gonna be all right just make sure you save them for 10 but realize a lot of these books that were written in the 80s 90s that book was specifically written in the 90s back then pensions were a little more common common everything i mean you had a lot of companies that had pensions social security the safety net was much more stable so it was one of those things probably if you were saving 10 it's because your employer plus you were taking some out of your paycheck going into a pension you're going to be fine we all know that stuff's not around anymore now we have more of roth iras 401ks four or three b's the the the responsibility falls on your shoulder so instead of saving 10 is enough you've got to think about what can i save that actually carries the full weight to make sure i'm okay and the more money you make the more responsibility falls on you so we know it's greater than 10 we decided let's figure out if there's a mathematical way to figure out since we know it's going to fall on our shoulders with how much people should be saving so uh let's look at the numbers right so here's sort of the math behind the 25 here's what we assumed and we did this with very conservative assumptions we said let's assume that on your investment assets you can have a six percent annual rate of return really really conservative return and let's assume that wherever you are your wages will increase from where they are today about one and a half percent per year and when you retire at age 65 your goal is to replace 80 of your pre-retirement income so i'm going to walk that through again you make x dollars today and x dollars are going to grow by a one and a half percent every year until you get to retirement and then when you retire what you want to accomplish is you want to be able to replace 80 of your pre-retirement income so income goes up you want to replace 80 of that well here's what we found if you're someone who starts saving at 20 and that is your goal for an 80 income replacement 65 you actually have to save 12 yeah you'll have to save 12 percent to get there however if you will take our advice if you will become a financial mutant early on and you can save 25 starting at age 20 by the time you get to 65 when you retire you can actually count on assuming a four percent withdrawal rate a hundred and sixty seven percent of your pre-retirement income you can retire and get a pay raise now what most often happens is most folks don't do that what this means is that if you can figure out 20 odds are you won't have to work all the way until 65. you're gonna have some option sooner so then if we say okay well what happens if the number is 25. if you're starting at zero at 25 now instead of only been having to save 12 percent you got to say 15 for an 80 replacement ratio but again if you can save that 25 starting at 25 all the way till 65 you'd be able to replace 131 of your pre-retirement income at 30 and this is what i think happens for the average person they don't take it incredibly serious in their 20s and then their 30s happen at 30 if all your goal is is to replace 80 percent of your pre-time income you have to be saving 20 you don't have a lot of wiggle a lot of margin but if you can save 25 there's a chance that when you retire at 65 your retirement income will match what your pre-retirement income was you can replace 100 of it if you wait till 35 you got to save 26 over the 25 number to replace 80. if all you save is 25 you're going to be right there at that 80 percent and then if you wait till 40 to figure this out you got to make up for lost time that's when you have to say okay you know what maybe i wasn't doing it but now i got to get serious this is my savings rate does have to get really really aggressive that if i want to replace 80 of my pre-retirement income and i'm starting at zero at 40 i got to have a 34 savings rate mm-hmm and look you can see if you only save 25 percent only gets you close to 60 of your living expenses and here's here's the thing guys i know most people in their 20s you're fighting for every dollar and it's easy to have that that that envy monster that green with envy where you look at people who are older who have more and like man i just i don't make enough i don't have enough going on to get it this is why i love showing data like this is because i get it we all when we're in our early 20s don't have a lot of money but look at how powerful every dollar in your army of dollar bills is it's okay if you're saving 15 while you're in your 20s it's going to work out but if you can somehow start maybe when you come out of college at 22 23 years of age maybe you start at 10 but then you know every time you get a pay raise you're putting at least half of that pay raise towards the future with the goal that by the time you leave the decade of your 20s you're in that 25 percent of gross income guys it's gonna be incredible and here's what i so that that just shows the opportunity and how powerful each dollar is but i'll go a step further by looking at this chart and looking at the data that beau just rolled out you're good in your 30s i mean this is one of those things even if you goofed off in your 20s and you just had the realization you just found the money guy show in your 30s it still works you can do this by saving and still having a great retirement 40s doesn't mean it's in no man's land or anymore it just means you're going to have to get to work you got to pull up the socks a little bit higher and know that this is going to be harder but you can do it all this is very important to keep motivated understand the why and then create a balance a plan that actually reflects your life now you have to find the balance right so a lot of folks may be looking to say oh great i can do 25 i'm just going to wait till i'm 35. i'm just from from 20 to 35 i'm going to spin like a banshee and then i'll get serious about it because i've still got enough time to make it up well none of us know what life is going to throw at us we don't know how life circumstances are going to change how our job is going to change what the economy is going to do so if you can figure this out early what you're really doing is you're providing your future self with options but and the point of this whole show is you have to find that balance you don't want to be saving everything in your 20s and not living at all and enjoying the present you don't want to be so tight and so miserly that you find that your relationships are struggling and the people you care about become less important than that future goal or that financial thing you're trying to achieve you care about and you don't want to miss track of okay am i really covering all of my needs or am i misappropriating and thinking that something i actually need is a want and i'm not doing it because i'm so focused on saving a true financial mutant understands where that goldilocks middle ground is yeah and that's what i i do want to make sure we don't lose the point that maybe you just goof off into your 30s that's that's not success either i want you saving even in your 20s because if you get ahead of the game what it does is it creates that margin when you're buying the first house so you know it gives you you mentioned it it gives you flexibility it gives you margin it also now i think a lot of you are probably watching this your financial mutants and you're like i think i'm going to have i'm going to be in a really good place what does this mean for me because i'm i'm kind of self-reflecting after watching this show maybe you maybe you do get time you know that's what financial independence is supposed to allow you to have options and one of the most valuable resources in the world you can't buy it it's time so if you are ahead of the curve maybe you can retire sooner maybe you love doing what you're doing you don't want to retire sooner maybe that allows you to start thinking about legacy goals charitable giving paying for kids grandchildren's education you know there's all kind of things you can do with that margin i'm just go echo bow and say create a plan and it's going to be custom you're going to need if you've reached that level of success where you're wondering if i save too much am i on track if i save too little this is when it probably does make sense to bring in a co-pilot if you are so successful that you're second-guessing how do you manage this money or do i have too much do i have too little that's that's when we love the abundance cycle because i give you tons of free advice we load you up so you can learn apply grow but there is a moment a crossroads where we're hoping that you're so successful that you do need to co-pilot you need that personal cfo interaction that we can do as as fee only financial advisors and look guys we love that we get to do this and brian and i've been talking a lot about this lately and i don't know why this has been in our minds but we've decided we just want to change the whole financial world we want to make sure that we are adding as much value to your lives as we possibly can so if you've not had a chance to go out to the website moneyguy.com go check out our resource page we have tons of free resources out there available for you now and we have a lot in the works we've got some exciting stuff that we're working on that we hope will be of value for you if you are on any sort of social media whether it's tick tock or facebook or instagram or twitter make sure you go follow us there because we're trying to put nuggets of useful and valuable information out there because at the end of the day what we ultimately want to do here is make sure that we are adding value to your financial lives because if we can get enough people to make better financial decisions to start at home it will be amazing the impact that can have and we're going to be right here with you on that journey thank you so much for letting us be on this journey with you i'm your host brian preston mr bohansen money guy team out

Channel: The Money Guy Show

Views: 115,655

Keywords: money guy show, debt, budget, cash, real estate, insurance, how to make money, save, credit card, compound interest, buying house, buy stock, success, personal finance, 3 Signs You're Saving TOO MUCH For Retirement!

Id: zq-wLJ7NpRI

Length: 44min 44sec (2684 seconds)

Published: Fri Oct 01 2021