Can You Save Too Much for Retirement?

Kerry and Robert Moore defy the popular notion that Americans spend everything they earn and then some. Kerry, 37, an engineering manager for the U.S. government in the Denver area, sets aside 30% of her pay. She directs $597 to the government's 401(k)-style retirement plan every two weeks, $100 a month to each of three mutual funds and $25 monthly to 529 college-savings accounts for sons Max and Sam, ages 5 and 2. Kerry and Robert, 39, also add $4,000 a year each to their Roth IRAs. All told, the Moores save $27,000 a year and have already accumulated about $500,000. Plus, with 18 years on Uncle Sam's payroll, Kerry is in line for a good pension.

The Moores are in good-enough financial shape that Robert, who used to work at Lockheed Martin and Raytheon, stays home with the kids, while Kerry works full-time and pursues a master's degree. She's also expecting a new baby. Still, Kerry has a nagging feeling that her saving habits are over-the-top. "Am I saving too much?" she asks.

Okay to spend. That's not a flip question. Too much thrift "can be an impediment to a happy lifestyle," says Rebecca Preston, of Preston Financial Planning, in Providence, R.I. She advises well-set clients who are young or approaching retirement to "stop pinching every nickel until the buffalo screams" and to move to a more desirable location, switch to lower-paying but more enjoyable work, or just have a good time.

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Jeff Broadhurst, of Broadhurst Financial Advisors in Lansdale, Pa., echoes Preston. He says people who are careful with their finances and have good health benefits and pensions almost always have enough money in the end. Broadhurst also suggests that families with ample savings, good credit records and secure jobs consider taking advantage of softer housing prices to trade up. Kerry, who isn't interested in moving, "sounds like she's asking for permission to spend," Broadhurst says.

A sound investment plan gives the Moores flexibility. Their largest pot, roughly half of the total, is in Kerry's government-sponsored retirement plan. She directs almost 90% of her contributions to a mix of U.S. and overseas index funds and the rest to bond funds. Funds in taxable accounts include T. Rowe Price Mid-Cap Growth, a fine performer, and the improving Janus Worldwide. In addition, Robert has a pile of Lockheed stock. At their current pace of saving, and assuming a 7% annualized return, the Moores are on track to accumulate $2.5 million to $3.5 million in 20 years, depending on taxes and whether Robert returns to work.

Tuition bills. That should help the couple through the school-bill crunch for Max, Sam and 13-year-old Sarah, who aspires to train as a chef. Assuming Robert resumes his career and Kerry earns more promotions, paying for culinary school should be as easy as frying an egg.

So, is Kerry Moore saving too much? Yes, if you don't think the typical family needs millions of dollars for education and a comfortable retirement. No, if news about layoffs, foreclosures and the wobbly stock market has you trembling. If so, the uncomfortable truth is you can never save too much.