Yahoo Finance Saved Too Much for Retirement? Here’s What To Do With the Money Now
Saving for retirement has been tricky for many Americans lately. Inflation, which is hitting many areas such as groceries, and soaring rates, which are impacting everything from credit cards to loans and mortgages, have all been taking a toll on Americans’ savings, and, in turn, have left little funds to go toward retirement planning.
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Yet, some Americans say that their goal is to over-save for retirement, something that Joe Camberato, CEO, National Business Capital, does, saying he views this as a “very big positive.”
“I don’t think you can ever save too much,” Camberato said. “Having too much money is a good problem to have! But it’s important to be intentional about how you use it.”
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Be Intentional With the Extra Savings
Even if you are over-saving for retirement, don’t spend it on random things, according to Camberato.
Instead, he argued, that you should think about the fact that we’re all living longer, and what seems like excess money now might not be enough later.
“A smart move would be to invest your money in income-producing assets like real estate, safe dividend-paying stocks or even starting a business,” he said. “This way you can generate more income to spend on fun things or luxury items.”
Camberato also noted that you should look over your options with a good financial advisor that shows you what your returns and risks might look like in different investments.
“The main takeaway is to place that extra money to work for you so you can enjoy the benefits down the line,” he added.
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Be Careful in Your Assessment of What Is ‘Too Much’
Several financial experts urged caution when assessing what might be “too much” savings.
“It certainly is possible to have saved more than you’ll need in retirement, but be very, very sure of that,” said Kyle Enright, consumer finance expert and president of Achieve Lending. “Understand that expenses in your retirement may very well be higher than you anticipate today.”
Enright noted that beyond inflation, as people age, they generally need more healthcare, and not all expenses are covered by insurance.
“Nor is most long-term care or the costs of living in a senior facility with assisted living and skilled nursing facilities,” he said.
Other experts went further, arguing that we should get rid of the concept and phrase “excess savings.”
“Savings are amounts put aside for the future, and if we have more than we planned to, it’s great,” said Peter C. Earle, senior economist, American Institute for Economic Research.
According to him, as long as the future is uncertain, having more savings than one planned for should simply be viewed as luck or excellent budgeting.
“Consider someone who retired in 2015 or 2016. They probably spent a bit less than expected during the pandemic and may have received stimulus checks,” he said. “Fast forward and for three years their finances have been raked over the coals by the highest inflation in four decades. There are no excess savings, there are only savings in line and out-of-line with expected expenses.”
Ways To Spend the Excess Savings
If you are lucky enough to have way more savings than needed, here are some spending ideas.
Increase Spending and Enjoy It
Financial experts also recommended several ways to help retirees rethink when they find out they have more than they need. For instance, Stephen Kates, CFP, principal financial analyst at Annuity.org, encouraged them to increase spending.
“You may not need to spend more, but you can certainly adjust your spending to make your existing goals easier or more enjoyable,” he said. ” Even if you aren’t planning to add extravagant purchases or trips on top of your existing retirement goals, simple everyday conveniences can make a difference in your life.”
He added that examples include buying first-class tickets instead of economy-class tickets, parking valet at an event venue or simply having groceries delivered instead of shopping.
“These things cost more, but they may make your life a little easier and that is one of the best ways to use your money,” he said.
Jason Dall’Acqua, CFP, founder and financial advisor, Crest Wealth Advisors, echoed the sentiment, saying that you should “enjoy your money.”
“You worked, saved and invested to create financial freedom, which you have achieved,” he said. “If you are confident in having more than you will ever need then it is OK to treat yourself every now and then to enjoy your years of hard work.”
Gifting and Leaving a Legacy
Other ways include making gifts to children, relatives or charities.
“Gifting can come in many forms, and by working with an accountant or financial advisor, you can also make your gifting as tax efficient as possible by giving assets such as appreciated stock instead of cash,” Kates added.
In addition, leaving a legacy is another way to use these extra funds. While it often equates to passing on unused assets, a well-planned legacy can do more, Kates said.
“Certain assets are better inheritances such as Roth IRAs. By converting tax-deferred assets into tax-free assets, you yourself take the burden of the taxes so your heirs will not,” he said, adding that you can also leave a legacy of knowledge.
“Demystify your wealth and let your heirs learn from your triumphs and failures,” he added.
You Can Have Too Much Saved
Finally, some experts — such as Jay Zigmont, PhD, CFP, founder of Childfree Wealth — argued that there is such a thing as saving too much for some people, a frequent problem for his clients, he said.
“I serve childfree people, and most of them want to ‘Die With Zero.’ If your goal is not to pass on money to the next generation, you can have too much saved,” he said.
“With my clients, we often end up with a plan to spend and give money in equal amounts each year,” Zigmont said.
For example, he said it is common for clients to set a goal of a certain amount of travel and giving — $50,000 to each for instance — and in this way, they are both getting to enjoy the money and get tax breaks for giving.
“My wife and I plan to Die With Zero,” he said, “We don’t have kids and our nephews will get whatever is left over. If they get $10k or $100k that is fine, but if they get $1 million that is a problem.”
In that case, he argued, they probably should have given it to them earlier when they could have used it or spent it over their lifetimes. We have 529 accounts set up for our nephews and make monthly contributions so they can have the money when they need it. The key is to figure out if there are better ways to use your money than to pass it on to your estate.
Last but not least there is a notable factor to keep in mind: At the end of 2025, the Estate Gift Tax Exemption amount rolls back to about $7 million per person — from $13.6 million now, he said.
“If you are going to be passing on more than $7 million after 2025, any additional amount will be subject to 40% estate tax. That means if you plan on giving away a lot of money in your estate, you may be giving a lot of it to Uncle Sam,” Zigmont said.
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This article originally appeared on GOBankingRates.com: Saved Too Much for Retirement? Here’s What To Do With the Money Now
