5 Signs You’re Over-Saving for Retirement

Summary

This 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

00:00

💰 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.

05:01

🌟 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.

10:03

💡 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.

Keywords

💡Savings Rate

The savings rate refers to the percentage of one's income that is saved rather than spent. In the video, the speaker highlights that the majority of the audience saves at least 10%, which is significantly higher than the U.S. personal savings rate of 3.4%. This concept is central to the video's theme of discussing the balance between saving for retirement and living a fulfilling life.

💡Financial Independence

Financial independence is the state where one has enough savings or passive income to cover their living expenses without needing to work actively for income. The video discusses the importance of financial independence as a goal, and how excessive saving can sometimes hinder achieving a balanced and fulfilling life.

💡Frugality

Frugality is the practice of being economical with one's resources, often to the point of being frugal or stingy. The video script mentions that those who are very good at saving money often exhibit frugal behavior, which can be beneficial in the early stages of financial growth but may become detrimental if it leads to forgoing life experiences or causing stress in relationships.

💡Opportunity Cost

Opportunity cost is the potential benefit an individual, investor, or business misses out on when choosing one alternative over another. In the context of the video, the speaker discusses how spending too much time on low-impact activities to save money can have a high opportunity cost, as the time spent could be better used for more fulfilling or productive activities.

💡Scarcity Mindset

A scarcity mindset is a belief that resources are limited and that there is never enough to fulfill everyone's needs. The video suggests that a scarcity mindset around money can lead to excessive saving and a reluctance to spend, even when financial goals have been met, which can negatively impact one's quality of life.

💡Hyper Savers

Hyper savers are individuals who save a very high percentage of their income, often at the expense of current consumption and life experiences. The video uses the term 'hyper savers' to describe those who save at an extreme rate, such as 75% or more, and discusses the potential downsides of this behavior.

💡Financial Goals

Financial goals are specific, measurable objectives related to one's personal finances, such as saving a certain amount for retirement or achieving financial independence. The video discusses how exceeding one's financial goals by a large margin can be a sign of over-saving, especially if it leads to neglecting current life experiences.

💡4% Rule

The 4% rule is a guideline in retirement planning that suggests a retiree can withdraw 4% of their savings in the first year of retirement and adjust for inflation thereafter without running out of money. The video references this rule to help viewers calculate their financial independence number and to determine if they are saving too much for retirement.

💡Novelty

Novelty refers to the introduction of new elements or experiences. The video script mentions that novelty is a key factor in how our brains measure the passage of time, suggesting that a lack of new experiences can make time feel as if it's passing quickly and can contribute to a less fulfilling life.

💡Buyback Rate

The buyback rate is a concept discussed in the video that relates to the value of one's time. It is calculated by dividing one's annual income by 2,000 to find the hourly rate and then dividing that by four. The video uses this concept to argue that if a task can be outsourced for less than this buyback rate, it may be more efficient and beneficial to do so, as it frees up time for higher value activities.

💡Health Sacrifices

Health sacrifices refer to the decisions made to save money that could potentially harm one's physical or mental well-being. The video points out that some individuals might delay necessary medical treatments or avoid necessary safety measures to save money, which can be a sign of over-saving and an unhealthy relationship with money.

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]