Many would probably expect me to say that it’s so important to save for the future, and therefore this takes priority. So many people nowadays aren’t saving enough that it seems odd to suggest that maybe you shouldn’t be putting every penny away for that rainy day.
Surely its sensible to save for the future, and the more money you can save for the time when you’re not earning, the better? Maybe yes, maybe no.
As ever, with a lot of questions I raise, the answer is…it depends.
If you have sufficient money to live the lifestyle you want now and can still save a significant amount for your future, then that’s great.
But what if you’re cutting back on living an enjoyable life now, to ensure you have sufficient for whatever may happen to you in later years in your 70s, 80s and beyond?
This question is prompted in a meeting I had with a client yesterday. Let’s call her Dianne.
Dianne has been saving for many years, always aware that when she retires, she wants sufficient savings so she can enjoy her free time and lead an enjoyable lifestyle. She will have a lot more free time for holidays and socialising and wants to ensure she has the funds to cover this.
However, she is also very cautious and worries about spending money now in case it runs out in the future. I’ve done detailed financial planning with her which involves looking at her savings and how they will impact over time, and it shows she will have sufficient funds to last her lifestyle.
We’ve even included a figure for “extra fun days” for the next 10 years since I’m encouraging her to spend money now whilst she’s fit and healthy, and able to do the activity and sports holidays she loves.
She also asked me to include an amount for potential care home fees for her when she’s much older in case she has care needs.
The cashflow still showed she had sufficient, but I then questioned her as to whether she wanted to cut her spending now to ensure there is sufficient available in the future for an expense that may, or may not, be needed.
Dianne has a large house which was the former matrimonial home, and she is planning to stay in this long term, hoping to have her children and future grandchildren come to stay with her. But I pointed out to her that if she were ill enough to go into a home long term, it was unlikely she would be well enough to return to independent living.
Therefore, if she needed care at a future date, this could be funded by selling her house at that stage.
Yes, of course, if the house sale funded her care fees, that would leave less available in her estate to pass to her children and grandchildren. But if the choice is between allowing your children to have a more comfortable life or giving yourself the care you need at a home that suits, I know which choice I’d make.
It concerned me that Dianne was potentially cutting back her spending now for an event that may never happen. And in fact, if it did happen, there were alternative means to deal with it.
I worked out how much extra Dianne could spend now if she didn’t set aside funds to cover care home fees. This would cover some significant holidays.
She has gone away to think about this and consider whether she is cutting back spending now through fear of what may happen in the future. She doesn’t think she is, but before we finalise the plan, I asked her to spend some time thinking about what she would do with this extra money. She could then decide as to how important it is to her to have these available funds.
So, in answer to the question, can you have too much money saved. My feeling is yes, if you are cutting back on enjoying your life now through fear of running out of money.
My advice is to speak with a financial planner to do this exercise to see just how much you can afford to spend now and feel comfortable you won’t run out of money.
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