Outdoor portrait of retired couple enjoying a drink at the golf club.
By Marilen Cawad

NEW YORK (TheStreet) -- A lot has been written about retirement and how people should be saving more to live comfortably in their old age. But is there such a thing as going overboard with retirement savings? Are we becoming obsessed with retirement, so worried about the future that we deny ourselves many of the things we should be enjoying right now?

In a new nationwide survey conducted for TheStreet by GfK Custom Research, 85 percent of respondents said "it is important to be prepared for the future by sacrificing and saving today."
It would seem that even if they could afford to go on vacation, buy their dream home or upgrade to a nicer car, many would choose to put more money toward their retirement accounts instead.

Carrie Schwab-Pomerantz, president of Charles Schwab Foundation and senior vice president at Charles Schwab, says that isn't necessarily a bad thing, especially if one is playing catch up on retirement savings.

"If you started saving 10 percent to 15 percent of your income in your 20s, you should be on track for a comfortable retirement," says Schwab-Pomerantz. This could mean you will have some extra money now to spend on the things you'd like to enjoy.

But if you're in your 40s and you haven't even started a retirement account, Schwab-Pomerantz says you may need to set aside up to 40 percent of your income. Saving that much could indeed lead you to make sacrifices today.

Retirement Paranoia

Of those surveyed by GfK for TheStreet, 75 percent said they currently do not live beyond their means. Even then, 51 percent said they still find it hard to save for retirement, and 44 percent reported worrying that they aren't doing enough financially to prepare for retirement.

Austin Nichols, a senior research associate for the Urban Institute's Program on Retirement Policy, believes many people are paranoid about retirement because of constant reports that Americans are just not saving enough.

"There is a lot of hand-wringing about the state of Americans' retirement savings, particularly in the wake of large wealth losses during the recent recession," Nichols says. "But the concern is based in part on implausible targets for expenditures in retirement."

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Nichols warns of the dangers of saving too much, saying the traditional rule of thumb advocated by many financial planners -- replacing 80 percent of pre-retirement income -- is misguided. Instead, Nichols suggests lowering target spending in retirement.

"If one aimed to replace four-fifths of preretirement income in retirement, and saved two-thirds of income for 20 years to hit that target, spending would more than double at the moment of retirement, which is clearly not optimal," Nichols says. "Who wants to double their spending the day they retire?"

Let's say you're 50 years old and you have the money to spend on a trip around the world that you've been meaning to take with your spouse. Should you postpone that trip in order to put more money in your retirement account?

"If you're focusing on replacing a large percentage of your retirement income, and in doing so you make uncomfortable and unnecessary sacrifices now, you could lose out," Nichols says. "You don't want to be saving excessively for a future that may never come."

A 2009 report by the Brookings Institution and University of Wisconsin-Madison found that most Americans are generally saving enough for retirement. This is in stark contrast to discussions in the popular media and in policy circles that Americans are doing a poor job preparing for retirement.

But when you factor in large and unexpected out-of-pocket medical expenses, David Rosell, president of Rosell Wealth Management and author of "Failure Is NOT an Option", says he's more inclined to believe that most Americans are not prepared for retirement.

Unexpected Expenses

In the survey conducted for TheStreet by GfK, 52 percent of respondents -- between the ages of 50 and 64 -- worry about facing major unexpected medical expenses.

Apart from medical expenses, retirees should also consider the cost of long-term care. Rosell says, "Sadly, the escalating costs associated with long-term care during retirement can make the possibility of outliving one's retirement income a reality for many."

Research shows that at least 70 percent of people over 65 will need long-term care and help with basic daily activities at some point in their lifetime. According to Genworth's recent study, the cost of long-term care services has been steadily increasing.

In 2008, the median annual rate for a private nursing home room was $67,525, compared with the 2013 median annual rate of $83,950. This means Americans can expect to pay approximately $16,425 more per year today for a nursing home than they had to pay in 2008.

"The fact is, retirement could be very expensive," says Schwab-Pomerantz, who wrote "The Charles Schwab Guide to Finances After Fifty," out in April. When deciding whether or not to put more money toward retirement or spending on other things today, Schwab-Pomerantz suggests these saving fundamentals:
  • If your company offers a 401(k) plan that will match your contributions, save in your 401(k) up to the company match. Depending on your age, you may need to add more funds to your 401(k) or supplement your retirement savings with an IRA account.
  • In your bank account, make sure you have enough money to cover at least three to six months of essential expenses.
  • Pay off non-deductible, high-interest loans.
When these areas have been covered, Schwab-Pomerantz says, one can then start thinking about spending on other things such as a vacation, new car -- or even paying for a child's education.

College Fund vs. Retirement Account

In the survey conducted for TheStreet by GfK, only 29 percent of respondents said they worry about having enough money to send their children to college.

When it comes to saving for retirement vs. paying for your child's education, Rosell insists saving for retirement should come first. "Just as you would put an oxygen mask on yourself first before helping a child in a plane emergency, your retirement should be your priority."

Nichols, however, believes it's important to also invest in your children. "Again, you want to make sure you are not excessively putting money toward retirement that you won't pay for your child to go to camp or if you could afford it, pay for college tuition."

For many parents, education is an emotional issue. Some believe it is the best gift they could give their children -- parents would sometimes take out loans or borrow from their retirement accounts to pay for college.

On the other hand, some parents believe that it is better to not be a burden on their children later in life. They think that having financial independence -- taking care of medical and long-term care bills themselves -- is in fact the best thing they could do for their children.

The decision to spend more on children's needs -- and on other enjoyable things today -- often depends on how comfortable one feels about retirement. Whether you choose to hire a financial planner or run the numbers yourself using published reports and the Social Security benefit calculators, it's important to have a plan.

"It doesn't matter whether one report says Americans are saving enough for retirement and another says they aren't. What matters is how you are preparing for your golden years. Do you have enough, too little or too much saved?" says Rosell.

Once you have a plan in place, and after seeing how much you already have set aside for retirement, you can then decide if it's time to live the life or if you'll take a step back and save more.

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It's not easy to do, but everyone needs to be looking at saving for retirement. And a big part of that is getting rid of the debts that we can get rid of like mortgages, student loans, car payments and the like. Learn how those kinds of debts can have an impact on you at http://www.mutualfundstore.com/financial-obligations-debt. The sooner you get rid of that kind of debt, the better off you will hopefully be. Just don't get into even more debt!

May 07 2014 at 12:22 AM Report abuse rate up rate down Reply

Here's the path to retire on your own terms, in 7 steps:

1) Pay off your debts as fast as you possibly can. If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it. If you want to buy a car, get a reliable beater. Get insurance for $25/month from 4AutoInsuranceQuote (Insurance Panda is also good). Forget about buying a house until your debts are paid off.

2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.

3) If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land. An acre is good, 5 acres is better. Take the amount you are pre-approved for and cut it in half - that's how much you should spend on a house. Come to the table with at least 20% down and make a couple of extra mortgage payments every year. If you're going to be transferred or relocate every 5 years, forget about buying a house and rent instead.

4) Develop multiple revenue streams. Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Do whatever you can to generate income from multiple sources.

5) Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.

6) Make as much as you can. Save as much as you can. Give away as much as you can.

7) Retire!- the sooner, the better. Be sure you understand that "retirement" doesn't necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.

Don't be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change. Valuations fluctuate. Instead, measure your wealth by the amount of cash flow your assets consistently generate.

March 16 2014 at 5:05 PM Report abuse +1 rate up rate down Reply

This is complete BS. You can NEVER have too much to retire on. You can ALWAYS have too little.
The more you have when retirement comes, the comfortable you are and the less stress you have when you're not (or can't) working anymore.
Who wants to take a trip around the world when they're still working?? There's no time to take it all in. That's something I want to do when I retire...if I've saved enough.
And if I die before I can enjoy the money I saves I won't care..I'll be dead!! lol

March 16 2014 at 4:38 PM Report abuse rate up rate down Reply

Learning to live on less should carry over into retirement. If you develop good habits it is easy to do. If you value your freedom to not work while you are healthy you are good. Since no one knows when you will or if you will need money or how much for retirement health care set aside a certain amount to cover that. If you dont go crazy spending money you can still have a great time and enjoy your life.
Every day you are alive is a gift..........you never know after that.......

March 16 2014 at 5:26 AM Report abuse +2 rate up rate down Reply

The question wrong. The question is how long do you expect to live based upon your family history. Everything else follows from that.

March 15 2014 at 8:48 PM Report abuse +2 rate up rate down Reply
1 reply to nxston08's comment
Tom Wilson

The more pressing question is how much money, going forward, will be required to cover necessities, given rising costs of just " living" !?

March 16 2014 at 4:00 PM Report abuse +1 rate up rate down Reply

Better to live below your means and have more than enough, than to come up short.

March 15 2014 at 1:37 PM Report abuse +4 rate up rate down Reply

The best chance for a successful retirement depends on starting to save/invest early in life, being consistent, taking advantage of any employer matching plan, maxing out contributions when possible, eliminating debt, avoiding unnecessary risks with your nest egg and planning for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.). I found that the site Retirement And Good Living provides information on this and other financial issues, health, retirement locations, part time work and also has a great blog of guest posts about a variety of retirement topics

March 15 2014 at 6:35 AM Report abuse +1 rate up rate down Reply