Are You Saving Too Much Money?

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You've diligently saved your entire life, contributing the maximum amount to your 401(k) plan or IRA. You've even built a solid emergency fund so that you'll never have to rely on a credit card to pay for unexpected expenses.

But is it possible that you're saving too much?

Sounds implausible, right? How you can save too much money? The financial experts all preach that you need to sock away as much as possible so that you can afford the retirement you've been dreaming of — whether that means traveling the world, relaxing by the lake, or spending more time with your grandkids.

Saving too much money is certainly better than not saving enough. However, in rare circumstances — believe it or not — it might be possible to save too much money.

An emergency fund that's too big

Financial experts recommend that your emergency fund include enough savings to cover daily living expenses for about six months. This way, if you lose your job, you'll have a financial cushion as you look for new employment. You'll also have dollars to draw from if your water heater should suddenly burst or your furnace conks out. With an emergency fund, you won't have to resort to paying for these emergencies with a credit card.

But it is possible to build an emergency fund that is too big. It doesn't make sense to keep depositing money in such a fund if you've already saved up a year's worth of living expenses. The reason? The money in an emergency fund doesn't generate much interest. Generally, you'll deposit money for your emergency fund into a savings account, and it's rare to find a savings account that comes with an interest rate higher than 1 percent.

If you want your savings to earn money, it makes more sense to invest it in retirement accounts or the stock market. You'll usually receive a far bigger return on your money.

Building an emergency fund is a key financial goal. But obsessing over this fund and building it too high can cost you far more valuable returns. (See also: 10 Money Goals All 30-Somethings Should Have)

Stashing away too much for retirement

Can it be possible that you're saving too much money for your retirement years? This is unlikely, but it is possible. It all depends on how much you've already saved and the type of lifestyle you expect to live after you leave the working world.

How much should you be saving for retirement? A general rule of thumb is that you should save 10 to 15 percent of your income every year. Others suggest that you should save enough, and have enough in other income streams, to replace 80 percent of your pre-retirement income, aka the "80 percent rule."

Determining your pre-retirement income

What is your pre-retirement income? A good number to use is the average income you earned during the last 10 years during which you were employed. So if you earned an average of $50,000 during the last 10 years you were working, you'd need to have enough in savings and other income streams to come up with $40,000 a year, or $3,333 a month.

That sounds like a lot. But you do have options for coming up with that money. If you've saved diligently in a retirement savings account such as an IRA or 401(k) plan, you'll get the bulk of that money each month from these accounts. You can also rely on Social Security payments, pension payments, or other monthly income streams.

Expenses you'll no longer have

There is some debate about whether you'll actually need that 80 percent figure. The goal when you reach retirement is to have your mortgage paid off. At the same time, you won't be paying for your children's college tuition. And Medicare should cover a good chunk of your health care costs.

If you've planned well for your retirement, you might not need as much savings as you expected. You might reach the end of your working life with a surplus of money saved up.

Of course, this isn't necessarily a problem. Having more money saved further reduces the stress of retirement. Having more savings can protect you from unexpected costs during your retirement years. It's impossible to predict, for instance, if you'll need emergency medical care or if you'll need to live in an assisted-living home earlier than expected. (See also: 9 Times Life Can Throw Retirement Off Course)

But if you're saving so much money today that you're not enjoying yourself — holding off on a well-deserved vacation, or making do with secondhand furniture — you might consider spending a little more money today. As long as you're meeting your retirement goals, it doesn't hurt to treat yourself before you hit your post-work years.