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Help Me Retire

Aug. 22, 2020, 12:58 p.m. EDT

I have a seven-figure nest egg — am I saving too much for retirement?

A big pile of money is great, but it raises questions

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By Alessandra Malito, MarketWatch

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Your colleague may be right about setting yourself up for hefty tax bills in the future. How much is owed will depend on many factors, including how much you withdraw in a given year and how you diversify the accounts you withdraw from.

For example, you can use traditional retirement plans, which are funded with pretax dollars, as well as Roth accounts, which contain after-tax dollars. When it comes time to withdraw from those assets, the money from the traditional account will be taxed at ordinary income rates, while the latter will be a tax-free distribution. There are pros and cons to using these accounts though, so you have to see what is best for your situation. There are various alternatives and supplemental accounts as well to save money, such as taxable investment portfolios and life insurance. A financial adviser could help you avoid excessive tax burdens and strategize so that you’re getting the most out of your money.

Although you seem to have your nest egg in order, there are questions you can ask yourselves so that your retirement plan is well-rounded, said Nadine Burns, president and chief executive officer of A New Path Financial. Questions to consider include: do you have additional income to supplement your retirement, like a pension? When do you plan to claim Social Security and how does that fit into your expected retirement age? (If you retire before you claim, you’ll have to draw down some of those assets before you start receiving benefits.) Are there any health issues in the family, such as dementia, that may warrant long-term care planning? And what do you want to do with your retirement, so that the money you’ve been saving is used well?

Aside from planning accordingly for the rest of your years, if you intend to leave money to loved ones or charities, you should have a clear estate plan written up so that your wishes are met, Cundick said. Some advisers have seen their super-saver clients become “super-givers,” like Leon LaBrecque, chief growth officer at Sequoia Financial Group. “I love saving,” he said. “However, money is nothing but a piece of paper with a picture of a dead president on it until you get rid of it. You can save it for you or save it for others.” Charitable giving can also lessen the burden of tax obligations.

Also see: All the tax-friendly ways retirees can donate to charity

Having an estate plan ensures your hard-earned savings are being used the way you intended them to be used. However, you should consult with a financial professional, especially as rules can change. For example, the Secure Act passed in December eliminated the stretch IRA provision for inherited accounts, which could force loved ones to pay much more in taxes than you’d like.

But back to the present: Make sure to continue enjoying life now while you save and prepare for retirement, said Michael Simmons, director of financial planning at Transitions Wealth Management. “At some point, you may have the financial resources but lack the health or even the desire for things such as travel,” he said.

In the meantime, you should pat yourselves on the back, said Liz Gillette, a financial adviser at MainStreet Planning.

“For most of us, investing versus spending is a competing priority that we work to manage. Living life in the now because life is uncertain but saving/investing enough so we don’t compromise our future selves,” she said. “As long as that money can be used in ways that serves their values and priorities, I certainly wouldn’t say they have saved ‘too much.’”

Letters are edited for length and style.

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com.

Alessandra Malito is a retirement reporter based in New York. You can follow her on Twitter @malito_ali.

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