In this article, I address a phenomenon I refer to as “the risk of saving too much.”
Investment industry marketing statements often discuss the risk of saving too little for retirement or other financial goals. While this is absolutely a risk for many US households, it is not a risk for all US households. In fact, investors whose spending patterns are appropriate for their asset level and income may not face this risk at all. This can be true for both average and higher income households.
In order to understand their unique financial situation, each investor – in collaboration with his or her financial advisor – may want to challenge conventions that urge people to save more, based often on a fear of under-saving or the fear of the unknown. A shrewd analysis of an investor’s assets, income, expenses and other circumstances can give them a better idea about how much they can save or spend. Topics such as retirement, college savings, healthcare spending, and inheritance can all be considered as part of this financial planning exercise.
The happiness factor
In my opinion, the number one reason to perform a comprehensive analysis of one’s savings and spending needs is so each investor can better balance their savings plan with the ways in which they enjoy life. I would never want to see an investor sacrifice many of their passions in life in order to save more, without knowing it may not be necessary. Savings should be for a carefully calculated purpose; it should not become a competition or an obsession. Here are three other things for investors to consider when evaluating whether they are saving the appropriate amount:
- Are there better, more productive investment or business uses for the savings?
- Is the investor maximizing his or her impact on causes and favorite charities?
- Could the investor be more active in financially helping family or friends?
Taking stock of their overall financial picture can give an investor a much greater feeling of comfort when deciding to spend or not to spend. Yet some might go through a financial planning exercise and decide that fear of the unknown (health, life expectancy, career changes) requires them to save beyond what is necessary. One answer to that concern may be to consider insurance products. Here’s an example of how one might address this concern using two sleeves of assets, one that is intended to cover spending needs up to age 85 (addressing nearer-term risk), and another intended to cover spending needs over the age of 85 (addressing longevity risk):
Sleeve #1: Up to 85 – In this sleeve, an investor may decide to own a diversified portfolio of mutual funds and ETFs.
Sleeve #2: 85 and beyond – In this sleeve, an investor could hold a deferred income annuity. This insurance product could provide a consistent stream of income for spending needs that starts at a given age and lasts for the rest of an individual’s or couple’s life. This approach may help alleviate an investor’s fear of outliving their money.
Becoming a well-resourced saver
It’s important to note that my main message is not that investors should stop saving and start spending lavishly. Instead, investors should take advantage of the resources many financial advisors can make available to them. Investors should consider asking their financial advisor to perform a comprehensive financial overview to specify their savings and spending needs. I would recommend that investors commit to this experience – providing their financial advisor with all the necessary information needed for an accurate analysis, including 401(k)s, 403(b)s, IRAs, non-retirement assets, non-investment assets, real estate, potential inheritance, defined benefit value, insurance accounts, etc. Above all else, this process can help confirm you’re not accomplishing other life goals and dreams while trying to meet exhaustive or unnecessary savings goals.
MVIN: The Fund seeks long-term capital appreciation with less volatility than typically experienced by international equity markets.
LSST: The Fund seeks current income consistent with preservation of capital to pursue higher yield potential in short duration yield securities.
Before investing, consider the fund's investment objectives, risk, charges, and expenses. Visit im.natixis.com for a prospectus or a summary prospectus containing this and other information. Read it carefully.
ALPS Distributors, Inc. is the distributor for the Natixis Seeyond International Minimum Volatility ETF and the Natixis Loomis Sayles Short Duration Income ETF. Natixis Distribution, L.P. is a marketing agent. ALPS Distributors, Inc. is not affiliated with Natixis Distribution, L.P.