5 Signs You’re Over-Saving for Retirement
Summary
TLDRThis video addresses the potential pitfalls of over-saving for retirement. Despite the importance of saving, the script reveals that excessive frugality can strain relationships and diminish life satisfaction. It suggests signs of over-saving, such as financial arguments affecting relationships, a lack of life experiences due to staying indoors to save, and exceeding financial goals significantly. The video encourages viewers to find a balance between financial security and enjoying life, emphasizing that it's okay to spend money occasionally to maintain a fulfilling life.
Takeaways
- 😀 Saving more than 10% of your income is impressive and puts you ahead of the US average personal savings rate of 3.4%.
- 🤔 Over-saving can negatively impact your life satisfaction and relationships, leading to stress and potential issues like divorce.
- 💔 Financial problems are a significant cause of divorce, with 37% of people citing money as a reason for relationship breakdowns.
- 🏡 Extreme frugality, rooted in early financial struggles, might not be sustainable or beneficial as your financial situation improves.
- ⏰ Time perception is affected by novelty; a lack of new experiences can make time feel like it's passing quickly, leading to an unfulfilling life.
- 🌟 It's important to find a balance between financial security and living a fulfilling life, which includes experiencing new things.
- 💰 Knowing your financial independence number and adjusting your savings and spending accordingly can help avoid over-saving.
- 🚫 Avoid spending excessive time on low-impact activities just to save a small amount of money; consider the opportunity cost of your time.
- 🏥 Don't sacrifice your health or essential needs for the sake of saving money; prioritize well-being over excessive wealth accumulation.
- 🔢 Use the 4% rule to calculate your financial independence number and adjust your saving and spending habits to ensure a comfortable retirement.
Q & A
What was the main topic of the video?
-The main topic of the video is the potential issue of over-saving for retirement and how it can negatively impact one's life satisfaction.
What was the result of the poll conducted by the YouTube channel regarding savings rate?
-The majority of the audience had a savings rate of at least 10%, which is more than double, or close to triple, the personal savings rate in the United States of 3.4%.
Why might a high savings rate be a problem in relationships?
-A high savings rate might cause arguments and stress in relationships, as financial problems are a common cause for divorce. Over-saving might lead to forgoing life experiences or delaying necessary purchases, which can strain relationships.
How does the habit of frugality affect one's lifestyle as their financial situation improves?
-As financial situations improve, the habit of frugality, which might have been necessary in the past, can become excessive and lead to a scarcity mindset that hinders enjoying life experiences and can cause tension in relationships.
What is the psychological phenomenon that explains why time seems to pass quickly when experiencing a lack of novelty?
-The psychological phenomenon is that novelty is the yardstick by which our brain measures our sense of time. The more novelty we experience, the more we feel time slows down, whereas repetitive, familiar activities make time seem to pass quickly.
What is the significance of the '4% rule' in retirement planning?
-The '4% rule' is a guideline that suggests a person can withdraw 4% of their retirement savings each year without running out of money for an average of 30 years, assuming an average investment return.
What is the concept of 'buyback rate' and how does it relate to saving money?
-The 'buyback rate' is a concept that calculates the opportunity cost of time. It is the amount of money one should be willing to spend to save an hour of their time, based on their annual income. It helps determine if spending time to save a small amount of money is worth it.
Why is it important to consider health and safety when evaluating one's savings habits?
-Health and safety should not be compromised for the sake of saving money. Neglecting health needs or safety can lead to more significant costs and suffering in the long run, which defeats the purpose of saving for a secure future.
What is the Fidelity guideline for retirement savings based on age?
-According to Fidelity's guidelines, by the age of 30, one should have saved 1x their annual salary, and by the age of 40, 3x their salary to be on track for retirement.
What are the signs that suggest someone might be saving too much for retirement?
-Signs include affecting relationships, time passing without experiencing novelty, exceeding financial goals by a large margin, spending too much time on low-impact activities, and sacrificing health and safety for the sake of saving.
Outlines
💰 The Impact of Over-Saving on Relationships and Life Satisfaction
The video begins by addressing the importance of saving for retirement, noting that while saving is generally beneficial, it can become detrimental if taken to the extreme. The host shares poll results showing that the majority of the audience saves at least 10% of their income, which is significantly higher than the US average of 3.4%. This is commendable, but the video suggests that excessive saving can strain relationships and friendships due to financial disagreements. It points out that money problems are a common cause of divorce, indicating that a frugal mindset, while useful for achieving financial stability, can become problematic if it leads to the neglect of life experiences and necessary purchases. The host encourages viewers to find a balance between saving and enjoying life to maintain healthy relationships and personal satisfaction.
🌟 Finding Balance: Living a Fulfilling Life Beyond Financial Security
Paragraph two delves into the psychological effects of living a life devoid of novelty and experiences due to excessive saving. The host argues that while financial security is crucial, it should not come at the expense of a fulfilling life. The video discusses how mega savers might miss out on life experiences by opting for the cheapest options, like staying home instead of going out or traveling. It references a neuroscientist's view that novelty is a key factor in how our brains measure time, suggesting that a lack of new experiences can make time feel like it's passing quickly and less meaningfully. The host advises viewers to reflect on their life's fulfillment and to consider spending money on experiences that enrich their lives, even if it means adjusting their saving habits.
💡 Reassessing Financial Goals: When Saving Becomes Excessive
The third paragraph focuses on the signs that one might be saving too much for retirement. It uses Fidelity's guidelines to illustrate how much one should save based on their age and suggests that exceeding these benchmarks significantly could indicate over-saving. The video uses the example of someone who has saved six times the recommended amount by the age of 40, arguing that such individuals are likely not to run out of money in their lifetime due to their good saving habits. It emphasizes the importance of knowing one's financial independence number and the 4% rule to determine a safe withdrawal rate in retirement. The host encourages viewers to consider their financial trajectory and adjust their saving and spending habits accordingly to ensure they don't miss out on life's enjoyment due to an overemphasis on saving.
⏰ The Opportunity Cost of Time: Recognizing When to Spend
Paragraph four discusses the concept of the opportunity cost of time, suggesting that those who spend excessive amounts of time on low-impact activities to save money might be over-saving. It introduces the 'buyback rate' concept, which calculates the value of one's time based on their income, and argues that if an activity saves less than this calculated value, it's not worth the time spent. The video uses examples like driving out of the way to save on gas or growing microgreens to save on food costs, suggesting that these activities might not be worth the time if one's income is high. The host advises viewers to reassess their spending habits to ensure they are not sacrificing their time and quality of life for insignificant savings.
🚑 Prioritizing Health and Needs Over Excessive Saving
The final paragraph warns against the dangers of sacrificing health and essential needs in the pursuit of saving money. It highlights how some individuals might avoid necessary medical care or delay important purchases for the sake of saving, which can be detrimental in the long run. The video stresses that health should always be a priority and that spending on health and safety should not be compromised. It encourages viewers to reassess their spending if they find themselves delaying necessary expenses for the sake of saving, reminding them that health and safety are invaluable and should not be sacrificed for financial reasons.
Mindmap
Keywords
💡Savings Rate
💡Financial Independence
💡Frugality
💡Opportunity Cost
💡Scarcity Mindset
💡Hyper Savers
💡Financial Goals
💡4% Rule
💡Novelty
💡Buyback Rate
💡Health Sacrifices
Highlights
The majority of the audience saves at least 10% of their income, which is more than double the U.S. personal savings rate.
A significant portion of the audience saves between 25% to 75% of their income, with some saving up to 75%.
Saving too much can be detrimental to life satisfaction, affecting friendships and relationships.
Financial problems are among the top reasons for divorce, highlighting the stress money can cause in relationships.
Frugality, a habit formed early in relationships, can become a point of contention as financial situations improve.
The importance of knowing when to stop scrutinizing purchases to maintain a healthy relationship.
Excessive saving can lead to a lack of life experiences and a blending of days, affecting the perception of time.
Novelty is a key factor in how our brain measures the passage of time, suggesting the importance of new experiences.
The video emphasizes the need to find a balance between financial security and living a fulfilling life.
Saving too much can lead to a scarcity mindset, which may prevent enjoying the freedom that money can provide.
The video introduces a four-step process for achieving financial independence and early retirement.
Exceeding financial goals by a large margin or already achieving financial independence may be signs of over-saving.
The 4% rule is explained as a method to calculate a safe withdrawal rate in retirement.
The concept of the buyback rate is introduced to illustrate the opportunity cost of time.
Sacrificing health and essential needs for the sake of saving is a sign that one might be saving too much.
The video concludes with a call to action for viewers to reflect on their saving habits and their impact on life satisfaction.
Transcripts
what's up guys welcome back to the
channel so the title of today's video
might be triggering to some of you but
for a lot of you in our audience over
saving for retirement is an actual issue
that we need to address and how do I
know this well I ran a poll last week on
our YouTube channel asking how much of
your income do you actually save as a
percentage and the results were pretty
shocking the majority of you have at
least a 10% savings rate which is
already more than double it's actually
close to Triple the personal savings
rate in the United States of 3.4%
according to the Federal Reserve so
right then and there I think you should
pat yourself on the back because I think
that's pretty impressive but even more
interesting to me was that how many of
you guys saved between 25 to 50% 50 to
75% and then you hypers Savers at 75%
you guys are just nuts now in general I
think saving more money is usually a
really good thing it gives you more of a
cushion you're able to retire faster and
it gives you some peace of mind but some
of you might be taking it too far and
that's what I actually want to talk
about today when you take it too far
that it's actually a detriment to your
own life satisfaction that shows me that
you might be over saving for a
retirement starting with sign number one
which is that your saving is actually
affecting your friendships and your
relationships so take a look at this
chart of the top reasons for divorce in
2024 arguing is listed as third on this
list and then financial problems are
fifth so if you are arguing about money
it's probably not a good recipe with 37%
of people citing money problems as a
reason for divorce we can see that money
is often a topic that can cause stress
between two people this is especially
because your mindset about money is
personal and can differ from your
spouses quite a lot now what we we
actually don't know is what percentage
of these people are stressed about not
having enough money I'm sure that's
actually a large majority of the people
that were pulled but the point I'm
trying to make is that if you're too
good at saving money that it's causing
you to all of a sudden forego life
experiences or perhaps even delay
purchases you absolutely need this could
be a problem in your relationship often
times the people that are very good at
saving are actually very frugal and the
habit of frugality is really hard to
kick once you start accumulating more
and more money and this habit of
frugality might be one that you have
with your partner early on in the
relationship that is rooted from a good
intentioned place so you might have
gotten together when you are both really
young you're both in debt you maybe
don't have a house and you have no
retirement savings perhaps frugality was
your only way to kind of band together
and have Financial Independence and
stability but as decades Pass and Pass
and both of you guys are really
disciplined with saving paying off debt
and actually making more money your
financial situation might improve
dramatically at some point you might
accumulate so much money that you are
more than on track for retirement and it
might get to a point where perhap
perhaps your frugality and your scarcity
mindset around money becomes too much
one of the spouses might want to
continue accumulating wealth while the
other spouse is thinking well the
frugality was like a means to an end and
now that we are finally at Financial
independence why are we still Frugal and
if you're really good at saving this
could actually be a problem that you
face with your partner and you actually
need to ask yourself how much is enough
and when is it enough because that's the
entire point of this whole thing we want
to accumulate money so that we can buy
some freedom in our lives and be secure
and we don't want our relationships to
suffer as a result of our obsession with
saving it's also important to know when
to draw the line and scrutinizing
purchases so early on when you aren't
making that much money perhaps it's easy
to criticize your partner for buying
things like a coffee at a Starbucks or
your Netflix subscription but as your
disposable income grows and your savings
increases some of these small purchases
aren't even worth your time in terms of
arguments or mind share which I will get
into later in sign number four the
second sign that shows me you might be
over saving for retirement is that time
is passing you by and the days are
blending together because you aren't
experiencing anything new I think it's
crucial to find a balance between
Financial Security and also living a
fulfilling life and often times with the
mega saer types they love to stay home
because it's the cheapest thing that
they can do they'll resist the
temptation to go out for dinner they
might resist the temptation to take a
vacation or they don't even want to go
to an event like a concert on the
weekend because it's going to cost them
money and that's a habit that many of
them will have and often if you're
saving too much of your money you're
basically in this cycle of going to work
making that paycheck and then you spend
the rest of your days at home or in a
consistent p pattern where time just
seems to pass you by I'm sure many of
you guys probably experienced this
during the pandemic when there was
nothing to do and nowhere to go time
seems to pass you really really fast and
all the days started to blend together
because we weren't experiencing anything
novel or new our perception of time was
warped and this is actually a
psychological phenomenon that's an
actual thing according to Matt Johnson a
PhD and neuroscientist quote novelty is
the yard stick by which our brain
measures our sense of time the more
novelty we experience the more we feel
that we're taking in and the slower time
feels time feels slow and dense when say
you're on a vacation in a foreign land
and everything we experienc feels new in
contrast that same daily work commute
that we've been doing countless times
before feels like it goes by in an
instant I think it's super important
that if you are really good at saving
money you should get a gauge on how much
you're experiencing life ask yourself am
I living a fulfilling life right now and
if the answer is not really you should
be asking yourself why and being kind of
introspective about it now everyone is
entitled to do whatever they want with
their time and for some people maybe
that is spending it at home but for most
people I would say that experiences time
with others and Novelty will really help
contribute to a more fulfilling life
this doesn't mean that you have to go
and blow tens of thousands of dollars on
a vacation a new car or perhaps going to
the club but what I more mean is that
you could schedule some time to hit
maybe like a road trip go for a walk
with friends or go to that concert that
you've been wanting to go to the point
of saving all this money is to have that
freedom to do so have a fulfilling life
and have Financial Security it doesn't
have to be an expensive thing we just
want to shift our mindset from always
saving and saving and saving to hey it's
okay to spend someone here and there the
thing we want to avoid is the scarcity
mindset where all of a sudden if our
habit is to save and save and save we
might not ever get out of that my father
is actually a victim of this so this is
not a secret I think he would be happy
to tell you that that he has a hard time
spending money at his age he doesn't
really think that he can change his
behavior anymore and since he grew up in
poverty in Asia back during a period of
War as well as unrest in his country
it's just always been ingrain in him
that he needs to save every single penny
and dollar that he could and if you have
parents or relatives or even friends
that have have lived through some trauma
especially financially related trauma
it's pretty common to see this type of
behavior the main point here is that at
some point if you're way ahead on your
finances it's okay to shift some of your
savings to consumption if it's within
reason and your financial goals are
still being achieved the third sign that
shows me you're probably saving too much
for retirement is that you are exceeding
your financial goals by a large amount
that or if you've already hit your
financial Independence number already
now I recognize that this is probably
not the majority of people watching
however a lot of you could find yourself
in this position sooner than you think
especially based on the poll of the data
of how much we're actually saving so
here on the screen are Fidelity's
guidelines on how much you should save
based on your age and you can see here
at the age of 30 if you saved 1X your
salary for retirement you were
technically on track for retirement at
age 40 if you save 3x your salary you're
on track for retirement as well so let's
use the age of 40 as an example if
you're making 100K per year three times
that is 300K saved so I would argue that
if you have more than 300K saved you're
already ahead of pace now what would I
consider somebody who is saving too much
money I would probably say if you're
double these benchmarks that Fidelity is
telling you to have so you're saving
let's say 6X at the age of 40 instead of
3x then I would argue that you are
probably saving too much money my
assumption is that if you're in that
position you're probably naturally
really good at saving you're probably
not going to run out of money in your
lifetime because you're making so much
more money and your habits are so good
that you will most likely stay on track
or even stay ahead of track even if
somebody tells you to spend more of your
money what I really want you to avoid is
that if you are grinding so so much on
your work that you aren't enjoying your
time and your life with your family or
your loved ones that might be a sign
that you are saving too much and one way
to figure out if you're ready to
transition from saving saving saving to
start spending a little bit of money is
to make sure you know intimately what
your financial Independence number is if
you haven't watched my video on the 4%
rule you should probably check it out
after this video I'll link it down below
but essentially that video covers how
much you can spend in retirement without
ever running out of money for an average
of 30 years the general idea is that a
4% withdrawal rate is very safe for the
time period of 30 years that means we
can withdraw 4% from our nest egg or our
financial Independence number every
single year without ever running out of
money based on the math so to figure
this out for yourself first we need to
take the amount that we need to replace
in retirement so if you want to spend
$60,000 a year in retirement you just
divide it by 4% or you can multiply it
by 25 either works so that's about $1.5
million is what we need in this
situation and you can use a calculator
online to then figure out how long it'll
take you to get there based on your
investing return rate as is your savings
rate and how much you have saved already
so you can see that if we need $1.5
million I would assume an investment
return of 8% that's the average on the
S&P 500 and then the savings rate here
you can play around with this to see how
long it would take you to hit that
number you can see that at a 40% savings
and investing rate it will take you
about 12.7 years to hit $1.5 million if
you already have 250k save for
retirement and you're earning 100K per
year of course if you are trying to hit
Financial Independence and retire as
early as possible then you might want to
adjust that accordingly but but in
general I want to show you guys the
four-step process for how retiring early
works so step number one you want to
figure out your expenses yearly looking
at every single category that you spend
money on and then number two you want to
multiply that by 25 to get your
financial Independence number using the
4% rule step number three is to look at
your current savings and how your
trajectory is shaping up in terms of
your savings and then step number four
is to Simply adjust based on the above
three steps for example if you're at
step three and you're currently trending
way above your financial Independence
number for your age you can always
adjust that Financial Independence
number to be higher so that you can
spend more in retirement or maybe that
just means you can spend a little bit
more money now to improve your quality
of life in the meantime sign number four
which shows me that you are over saving
for retirement is that you are spending
too much time doing low impact
activities this could mean that you
drive 20 minutes out of the way just to
save a few cents per gallon on gas or
you know you might spend like an entire
month growing your own microgreens to
save a few dollars on your food bill
basically at any point if you are
spending so much of your free time to
save an inconsequential amount of money
that might be a sign that you were
saving too much money because that shows
me that you don't understand the
opportunity cost of your time and that
perhaps you're being too Frugal Ali
abdall recently made a video about
buying back your time in a time
management video that I found so
fascinating about the opportunity cost
of time in his video he talks about the
concept of the buyback rate which is
actually talked about by the author Dan
Martell and that is defined as the
following basically you want to take
your total annual income and you want to
divide that by 2,000 that gets you your
hourly rate and then if you divide that
by by four you get your buyback rate per
hour so let me explain here let's say
you make $100,000 per year if you divide
that by 2,000 that equals $50 per hour
and that's how much your time is worth
now this buyback rate thing is more for
entrepreneurs but the principle still
applies which is that if you divide your
hourly rate by four in our case 50
divided 4 is $12.5 anything that you can
delegate that cost you less than $12.5
per hour should be delegated because
that means you'll get a four times Roi
on that spend in other words your
opportunity cost of your time is worth
$125 per hour so if you're spending one
hour to drive out of your way to save $5
on gas it's generally not worth it and
you're spending too much of your time
doing so if you're making say 250k per
year your buyback rate is now calculated
as 250k divided by 2,000 so that means
your time is worth $125 an hour divide
that by four which is 3125 so anything
that costs you less than around $31 per
hour that is technically the opportunity
cost of your time where it becomes not
worth it to you to do of course there
are going to be exceptions like if you
enjoy the said activity or you aren't
doing anything else productive with your
time but still this is a really good
Benchmark to kind of look at and gauge
okay is this said activity that's going
to save me money still worth it or not
sign number five that you are saving too
much money for retirement is that you
are sacrificing too much of your health
as well as your needs for saving and
this is a common problem with Hyper
accumulators of wealth they might put
off certain things that they actually
need in order to save money especially
in America where healthcare is expensive
even with health insurance insurance I
might add some people are going to want
to avoid the doctor or perhaps put off a
health rated problem because they fear
how expensive it's going to be it's even
common for people who need ambulances in
the United States to actually turn them
down because they're worried about the
financial repercussions of taking one
the average cost of being picked up in
an ambulance is anywhere from $400 to
$1,200 and even with insurance your out
of pocket cost could still be in the
hundreds or thousands of dollars so
sometimes for the purpose of saving
money people are really irrational here
and they avoid the doctor altogether and
this is not a good sign especially if
you have the financial means to do so
because I shouldn't have to tell you but
your health is number one because if you
aren't healthy you can't actually enjoy
the money that you're saving so when it
comes to your health don't cheap out the
second thing that people sacrifice are
things that they actually need if you
are delaying purchases because you think
you don't need it then think again
because this is especially true when it
comes to expenses surrounding your
safety for example you could delay
replacing your brakes on your car
because you think that they can last a
little bit longer or perhaps you're not
getting fire Insurance even though you
live in California because you think
it'll never happen to you if you find
yourself thinking these sort of things
it's time to reassess where you're at
especially if your spending is going
towards safety if it keeps you safe or
healthy that's the moral of this sign
you want to spend the money because it's
going to be worth it all right guys did
you resonate with this video let me know
in the comments and make sure to check
out another video from me like this one
right here on the five signs you're on
track to be a multi-millionaire I'll see
you guys in that video or a future one
on the channel thank you again peace
[Music]
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