3 things to consider when deciding how much to save for retirement.

How much to save for retirement is highly individualized and there are several factors that must be considered. The size of the nest egg you’ll need depends on your current age, planned retirement age, income needed in retirement and future medical expenses. It’s a lot to plan for but that doesn’t mean all your savings should go into retirement accounts. The following questions will help you determine if you’re socking away too much for retirement.

Do you have an emergency fund?

Having access to cash when an unplanned expense comes up can help avoid financial disaster. Without cash set aside for the unexpected (like car repairs, medical bills, insurance deductibles or job loss) you may be forced to use credit cards which add to the expense with interest charges, tap into your home equity (if you have a home) or withdraw money from a retirement account and get hit with a penalty for early withdrawal as well as income tax.

An emergency fund equal to three to six months’ worth of expenses provides a cushion that can get you through many financial difficulties. Some folks like to have a year’s worth of expenses in reserve. No matter what your comfort level for emergency savings, it’s wise to have this money on hand.

If you don’t have funds reserved for the unexpected, you may want to temporarily redirect some retirement savings until your emergency savings account is full.

Are you enjoying life now?

Some people focus so much on the future that they don’t enjoy the fruits of their labor in the present. They obsess about every dollar spent. They never take a vacation. They forego going out with friends. In other words, they trade all enjoyment now for future financial security.

If you tend to save for the future without enjoying today, consider the non-financial aspects of your choice. First of all, none of us knows how long we will live. Now may be the only opportunity you have to do the things you want. Second, our bodies change as we age. By the time many people reach retirement they don’t have the physical abilities that allow them to do desired activities.

Find a balance between taking pleasure in life in the present and preparing for the future.

Are there other opportunities you’re missing out on?

Saving for retirement is a smart move. However, tying up all your savings in an IRA, 401(k) means giving up other opportunities. Would saving less for retirement allow you to start a business? Get more education or training that will help you earn more? Buy a home or investment property? Build a financial portfolio?

Only you can determine if you are saving too much for retirement. If the questions above lead to the conclusion that it’s time to rebalance how you save money, we encourage you to set the change in motion. And if you have banking or investment questions, give us a call at 800-991-2221.

 

Federally insured by NCUA