Jacob Duke: Hey friends, and welcome back to another episode of Retirement Answers. My name is Jacob Duke, I'm your host as always. Hey, today on the show, I want to talk about a question that, I got from a client recently and they said, Jacob, how much should I be saving for retirement at this stage in life? And they're just a few years out and they're wondering because they've gotten to a spot where they're like, hey, we're making really good money, we've been maxing out our 401ks, there's some other things we think we wanna do, but their question is really relevant to a lot of people's situations that I encounter where you're saving for retirement and you're, that's what you've been conditioned to do, that's what you know to do, it's the right thing to do in air quotes, because you'll have more money at the end of the day, that way you can retire better and be more comfortable in all those things. And so the reason I wanna talk about this question specifically is because, I see a lot of people harming themselves when they otherwise don't know it because of how much they're they're saving to their four zero one ks's or saving to Roth IRA's or saving to brokerage accounts.
And by the way, like all those things, they're not bad, right? You know me, I'm a retirement planner where that's what we should be doing. We're trying to get to a spot where work is optional. But what I want to talk about today is around the power of your money once it's in the accounts, so compounding, and then how little of a difference your savings at 50, 55, 60 years old actually makes your overall nest egg. So we're gonna jump into that, but first, if you are new here, welcome.
My name is Jacob Duke, I'm a certified financial planner and the owner of River Tree Wealth, a retirement planning firm that helps people just like you plan smarter and retire better. And the purpose of this podcast is to help you get more educated around all things retirement, so that you can live a life that you truly enjoy and is fulfilling. So let's go and jump in. Whenever you think about your early stages of work in your career, you have $0 in your four zero one k, so you start adding money to it. Well, in that stage of life or even all the way up to midway through your career, your savings and how much money you are actually putting into the account is the thing that pushes it forward, right?
Because if you've got no money in an account, you put $10,000 into it, well, you didn't have any money and there weren't gonna be any returns gain because you had none, you had to put something in it first for there ever to be an investment with a return. Even then if you've got $10,000 in an account and it grows 10%, you only made a thousand dollars. So if you put another 10,000 into that the following year, and you made a thousand dollars over the course of that year, well, your savings is still 10 X that of what you earned from the investment. So early on, how much money you're putting into the accounts is the most important thing. I really don't care about what you're investing in, just get the money in the accounts.
Now that flips upside down as you go later and later to your career and as you get older, because over time your investments and how that money is invested and allocated becomes that much more important because every percentage point matters at this stage, right? You could put $10,000 into account, but $10,000 that you put in on a million dollars that you have total already, well, a 10% return on a million dollars is a $100,000. So you might get the same 10% return at 25 compared to what you might get at 60 years old, but that 10% can yield a very different amount of money for you in terms of dollars. So 10% return on a million bucks, you made a $100,000 for virtually doing nothing, yet you put $10,000 into the account, right? So you're not impacting it very much with your savings in that example.
Now, more money and putting more money into your accounts is not a problem. And by the way, many of you probably still need to be saving consistently and very intentionally. So I'm not saying just abandon it because you heard this from me. What I want to kind of bring up and point out here is this mindset around your money and then your retirement one day. It's the idea of working and then saving, and then one day you'll retire and then one day you can enjoy, right?
So work, save, retire, enjoy that order. That's what we've kind of been programmed and told ourselves is the right way to do this thing. And it's not a it's not the wrong way or the bad way. I just want to say there might be a different way. So the problem is that, you know, I think we as humans, get, especially if we're doing it well and we're growing our money, we get addicted a little bit to saving more and more money and only watching your accounts go up into the right.
And so what happens is, is we put our head down, we go after it, we do these things and we look up one day and we're like, wow, I didn't need $3,000,000 to retire, I really only need about 1.5, but I just oversaved because that's what I was used to and it's kind of what was the driving force to me continuing to work. So you end up over saving, right? You don't need the 3 or 4 or $5,000,000 perhaps, but we keep telling ourselves just if I can have a little bit more, a little bit more because more is better in our minds. And this is the main point of what I'm talking about today. If you're not paying attention to how much you need, whenever you do retire, you end up over saving, and the problem is that it's costing you a lot.
It's costing you much more than you realize. It's costing you time, it's costing you experiences, family, perhaps your health, enjoyment and fulfillment, all of these things fill in the blank. By focusing only on having more money and putting more money into your four zero one ks, or your brokerage account or your Roth IRAs, which are all good things, you could be over focusing on it leading you to not enjoying the time you currently do have. Because here's the lie that a lot of people believe, they believe they have to wait until retirement to start having fun or enjoying life again. And that's the furthest thing from the truth.
In fact, I believe that you should start exploring and enjoying and doing the things you hope to do in retirement, start doing that before you ever retire. It's kind of like a way of trying it out and seeing like, do I even like golf, right? Might get into and say, I'm gonna golf every day or play pickleball every day and it's like, yeah, that's fine, those are good things, but do you really like it enough to do it every single day? And then the question is, what happens if you get hurt and you can't do those things, then what's next? What's the next thing you're gonna do?
So I want you to try it out, I want you to go explore, go on the trip, right, don't wait till retirement to go on the trip, try going there first, or if you know, if you want to buy, let's say a beach home or a lake house or something like, yeah, that's where we're gonna spend all of our time, you know, three months out of the year, we're gonna be at this place. Why don't you just go rent a place down there for two weeks and see if you even like it first? Don't go buy it, just go try it first. And I think that is a good thing to do with retirement as well. See what you enjoy, see what you could be spending your time doing so that whenever you do step into retirement, it's not like jumping off of a cliff, you're really just stepping off the curb and only a few things are shifting underneath your feet, not everything.
So what does that look like practically? Well, I was kinda thinking about this, I wanted to give you two different scenarios, right? And I don't mean to be like gruesome or morbid here, but I just want you to think about it. So we've got, let's just say we've got two people that are both 50 right now, two males. They currently both have $2,000,000 safe, so they've done a great job to get to this point and they've got really good investments going, so they've done a great job to get to this $2,000,000 spot.
One wants to keep saving and keep chunking money away and also delaying any spending or fine, because they wanna have more money, they wanna get to 3 or $4,000,000 if possible, right? So they wanna keep throwing their money in the accounts, delay any sort of spending trips or travel or whatever they wanna do in retirement, that's for retirement in their mind. Now the other one, they slowed down a little bit on the saving part and they start doing the extra vacation per year. So they're already doing one vacation, let's say they're doing another one now because they're taking the money they otherwise would be saving to their different accounts, they're gonna be spending that whenever they take their family on vacation. They're gonna do that over the next five years, so they're gonna be spending a little bit money there.
Now, both of them get to 55 and they do retire. Now, one, the one who saved more money and didn't do the fun stuff during the last five years of work, he ended up with $2,800,000 and the other one who did enjoy the last five years a little bit more and spent some money there and reduced their saving, he ended up with about $2,500,000. So look at a $300,000 or so difference there in total asset values. Now, here's the tricky part. Let's say that both of them have a couple years of retirement and then both of them pass away at 57.
The question is, is who won? Who did it right? And I can't answer that question for you. But when we put it in perspective, we can see that more money does not equate more happiness or more fulfillment or more enjoyment. So I would argue that the one who started living life and spending more money and cut back on their savings, let their portfolio do the work in the last five years more than their own savings, they got to enjoy retirement before retirement.
They get to have more memories with their spouse and experiences, and the one who placed more importance on saving and working to have more money, they missed out on opportunities. And this all assumes that, you know, neither of them needed all the money they even had. But the point of it is this, if saving more money has a diminishing return and won't make or break your retirement, why are you saving more money? What if instead you started living like a retiree today, instead of waiting for some day in the future? That's what I want to share with you.
There's very much a cost that could be paid by over saving for retirement, if it means you're neglecting yourself, costing yourself your health because you're working too hard, you know, not having enough time with your wife or your kids or your grandkids because it's always work, work, work. In my opinion, and this is not the same for everybody, but in my opinion, that's a bad trade. Because your money, the power of it in that account, the compounding that could take place, that is worth so much more than what you can add to it in a given year. So, the takeaway for you is this, what if, if you're saving 30 or 40 or $50,000 per year, and you're in this spot in the last five to ten years of your working career, and you're like, hey, you know, I know my money is going keep growing over time, we're invested well. Yes, there's going to be ups and downs along the way, but I think I've got room here to start spending and enjoying a little bit more.
If you're saving $30,000 a year, why not take 10,000 of that and go enjoy every single year and only save 20? Why not if you're saving 50,000, why not take 20,000 go on the vacation, pay for the kids and then save 30. I can assure you they want your experiences way more than they want your money. They want it, they wanna be with you more than they want your money one day when you die. So that's what I wanted to share.
And the hard part of all this is knowing when you can cut back and knowing when you can, you know, stop saving as much and start living more now. That's where, you know, I obviously I'm biased, but I think a good plan and strategy comes into play there. And that's what we help our clients with here at River Tree. So if you're someone who's looking for help with charting out the path ahead and kind of giving the ideas and permission for you to enjoy life now, rather than constantly pushing that off, you can apply to work with us using the link in the description below, we're happy to have a conversation to see if we're the right fit to help you on your retirement planning journey. It's our belief here that life is is for living, and that money is simply a tool that can help you get there.
So hopefully this episode resonated with you. If it did, let me know, shoot me a message or you can leave it a rating and review there on Apple Podcasts or Spotify, but also share with a friend if they could benefit from it as well. Thanks so much for tuning in. We'll see you in the next one. Hey, it's Jacob again, and I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice.
Retirement Answers is for educational purposes only. Thanks for tuning in to this week's episode. I look forward to talking with you again next week.