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Saving is good. Everyone knows this. However, it is important to not get so caught up in cash hoarding that you forget to live life.

Our savings goal is $1m in revenue/interest bearing assets, excluding the house we actually live in, by the time we're 40 (the better part of a decade out). We've been stuck in savings mode for a long time, which is good, but I am wondering if there is a rule of thumb on when it is safe to dial back on savings and reorient towards a quality of life focus. We can all save money until the day we die but it seems a waste to only live to save. There must be a point where you can step back and use some kind of quantifiable metric to determine what is "good enough."

I know it depends heavily upon personal savings goals and whatnot, I'm just curious to know if there is a rule of thumb to determine when a family can start thinking about using income to live life rather than saving every dollar.

Question: how can one determine when to dial it back? Not stop completely, not by a long shot, but go from 20% to 10%, for example.

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    I think this question is the definition of "almost entirely based on opinions, rather than facts, references, or specific expertise", and therefore a candidate for VTC primarily opinion-based.
    – RonJohn
    Commented Jul 29, 2018 at 1:16
  • @ RonJohn I am asking for a yes/no as to whether or not an industry metric exists (a fact), not for a number for my particular scenario (an opinion). Now, if I asked if my target was sufficient I'd agree with an opinion based vtc.
    – acpilot
    Commented Jul 29, 2018 at 1:34
  • The 4% rule mentioned in an answer below has given me something to work with. We're on track to the goal and plan to work into at least our 50s. The goal is a checkpoint that we want to hit and, at that time, rebalance the financial plan if possible.
    – acpilot
    Commented Jul 29, 2018 at 1:41
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    Whether you can save $1m in 10 years depends heavily on how much you are actually making. $100k/year? Virtually impossible. $200-300k? Not terribly hard, but it depends on how much money you need to meet your definition of "living life".
    – chepner
    Commented Jul 29, 2018 at 16:38
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    This really might be better suited for a "quality of life" site, if there was one, because any answer depends on what you consider QOL. If spending lots of money is what makes you happy, you'll need a lot more money to achieve financial independence than someone whose preferred recreations are cheap or free. And it'll be a lot harder for you to get there. For instance, for a lot of my working life, I didn't deliberately save, I just accumulated money because there was nothing I wanted to spend it on.
    – jamesqf
    Commented Jul 29, 2018 at 16:49

3 Answers 3

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That's a tough one, because it depends a lot on your personal/family finances, the cost of living in your area and your definition of "quality of life". But you can look information about the 4% retirement rule.

It is a very rough rule, but basically says that your target for retirement should be to be able to live with 4% of your savings as yearly expenses.

With it, now you have a target to achieve (which may be more accurate than just 1M$), and then is up to you to reach that amount as fast as possible - saving as much as you can - or take it easy until you reach your desired retirement date.

(Personally, in my family we have learnt to live saving around a 40% and having a decent quality of life; it is not hard for us to maintain that rate. However, we are still quite far from our target for savings).

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    And note the flip side of this--figure what % of your income you need to save to reach that point.
    – Loren Pechtel
    Commented Jul 29, 2018 at 4:04
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Our savings goal is $1m in revenue/interest bearing assets, excluding the house we actually live in, by the time we're 40 (the better part of a decade out).

If that's truly your goal, then keep saving for it.

We've been stuck in savings mode for a long time, which is good, but I am wondering if there is a rule of thumb on when it is safe to dial back on savings and reorient towards a quality of life focus.

Maybe you're realizing that "$1m in revenue/interest bearing assets ... by the time we're 40" is an unfulfilling goal (which is perfectly reasonable).

We can't answer that for you, but I can say that life -- including your fiscal life -- needs to be balanced. IOW, don't be grasshoppers, but also don't be misers. Live below your means, but also enjoy your current life.

We can't give you any numbers, though, because we don't know your numbers.

The first thing that you must do, though, is speak to your POSSLQ about this. If you've got strong monthly investment contributions in addition to a solid e-fund, and strong yearly 401(k) & IRA contribs, think about dialing back the investment contrib somewhat, and putting that money in your "enjoy life" account.

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You must plan and you must base that plan on your exact circumstances.

Having a goal like:

Our savings goal is $1m in revenue/interest bearing assets, excluding the house we actually live in, by the time we're 40 (the better part of a decade out).

Is only good if it is based on some planning. It also isn't clear from your statement if that goal of 1 million by 40 is a final goal, or a guidepost along the way.

but I am wondering if there is a rule of thumb on when it is safe to dial back on savings and reorient towards a quality of life focus.

There is no one size fits all number. Yes some use the 4% rule mentioned in another answer, but there are debates about the accuracy and usefulness of the rule. It also doesn't cover all situations. It might not work if the plan is to retire at 40. It also might not work if the goal is to have enough money to also cover a person who has a handicap and will need help long after your death.

Your savings and investments may also be only a small part of your retirement funds. Some have pensions, some have national programs such as social security, others can use their equity in their home. Some know that their medical bills late in life will be expensive.

You need a plan. A source of that plan is from an expert that will for a flat fee devise a plan for you. it will start with who you are, what your goals are (early retirement, a vacation home on the beach...) , and then map out a plan with guideposts along the way. They will not execute that plan, they will not make commissions on specific funds or stocks, in fact they won't recommend specific funds or stocks.

Then if your situation changes (kids, health, income level) or some years go by, get an updated plan. That new plan is useful becasue tax laws change, the economy changes, and your situation changes.

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