20 Apr Am I saving too much in retirement accounts?

 Q. I have very little in non-retirement accounts. Really just my emergency fund worth $15,000 and a $5,000 mutual fund. How can I tell if I’m saving too much for retirement and not enough in non-retirement accounts?

A. Without knowing all the details of your personal situation, we can only answer your question generally.

If you want more specific advice, consider participating in NJMoneyHelp.com’s free money makeovers with a certified financial planner. (Just send an email to for more information.)

Back to your question.

Amanda Lott, a certified financial planner with RegentAtlantic Capital in Morristown, said she generally tells clients that saving for retirement should take priority over saving for other items, such as children’s college education or a bigger home purchase.

“This is because there are no loans for retirement like there are for college costs, and, if you’re not saving enough for your own retirement you probably shouldn’t start decreasing retirement savings to funnel those dollars towards a large purchase that perhaps you could defer, or, reduce in size,” Lott said.

You also need to consider where you’re saving, balancing between after-tax dollars and pre-tax accounts.

Start by asking yourself if you have an adequate emergency fund. She recommends you keep three to six months of living needs in cash in case you lose your job or have unexpected expenses (medical, emergency home and auto repairs, etc.)

Then, ask yourself if you have enough in taxable accounts to take care of planned expenses in the short-term (anywhere from one to five years), particularly if you’re under age 59 ½ and would be subjected to the 10 percent penalty if you withdrew from retirement accounts before reaching that age.

Also consider if you may be saving so much into pre-tax retirement accounts that you potentially could be in a higher tax bracket when you start utilizing those funds, Lott said.

“If so, then you might be better off saving for retirement in after-tax accounts,” Lott said. “If the tax bracket you’re in today, and thus, the subsequent deduction you’re getting today by saving dollars pre-tax, is lower than the tax bracket that you’ll likely be in in the future, you may want to reconsider how much you’re saving pre-tax.”

Instead, you could save more to your taxable assets, or, to Roth assets.

There is no such thing as an overfunded retirement account, said Alison Williams, a certified financial planner with Stonegate Wealth Management in Oakland.

“Those funds will grow tax-deferred until withdrawn, which can help tremendously in the nest egg accrual process,” she said, noting you first want to make sure your emergency fund is sufficient.

And while you’re saving for the long-term, make sure you don’t completely deny yourself some pleasures today.

“We also make it a point to tell our clients that, although the future is important, you shouldn’t miss out on the present,” she said. “If you’re putting so much into retirement accounts that you aren’t able to comfortably live — within reason — then you may want to reduce the amounts you’re contributing to retirement accounts.”

A balancing act, indeed!

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This story was first posted in April 2015.