Is Aggressively Saving for Retirement Killing Your Near-Term Joy? Here's How to Strike a Balance

The average American currently has $89,300 saved for retirement, according to Northwestern Mutual. But let's face it. Over what could be a 20-, 25-, or 30-year period, that's not a lot of money, even when coupled with Social Security benefits.

If you'd rather retire with a much larger savings balance, then you may be in the habit of spending carefully so you're able to free up money for your IRA or 401(k) plan. And that's a good habit to uphold. But there is such a thing as saving too aggressively for retirement. And it's important to know whether you've crossed that line.

When you're actually saving too much for retirement

There's a limit as to how much money the IRS will allow you to sock away for retirement each year on a tax-advantaged basis. This year, 401(k) contributions max out at $22,500 for workers under 50 and $30,000 for those 50 and older. IRAs, meanwhile, max out at $6,500 for savers under 50 and $7,500 for those 50 and over.

But you're not limited to an IRA or 401(k) for retirement savings. If you want to save beyond the limits set by the IRS, you could always do so in a regular brokerage account.

So, let's say you earn $80,000 a year at age 35 and want to save half your income for retirement. If you have a 401(k) through your job, you could max out at $22,500 and then save and invest your remaining $17,500 in a regular brokerage account.

Of course, saving half of your income for retirement purposes is a great thing -- as long as it's not making you unhappy. But if it is, then it may be time to rethink your approach.

It's important to save for retirement. But it's also important to be able to enjoy your life in the near term.

It's an unpleasant thought to contemplate, but what if you spend your entire career trying so hard to boost your long-term savings that you miss out on enjoyment along the way, only to then end up passing away your second year of retirement? And even if you don't pass away prematurely in retirement, you still deserve to enjoy some of your money while you're earning it.

So if you're in a place where you're unhappy due to denying yourself different splurges or expenses, it may be that you're actually saving too much for your senior years. And scaling back could be important for your mental health.

Striking a balance

Going back to our example, say that to save half of your $80,000 salary for retirement, you've been forcing yourself to live in a cramped apartment, drive a beat-up old car, and never spend money on meals or social events. Chances are, there's a middle ground there.

In that case, rather than try to save $40,000 a year for retirement, aim for $22,500, which would max out your 401(k). You're still socking away about 28% of your earnings, which is great. But that way, you have some flexibility to spend money on things that could improve your life.

Increasing your rent by $300 a month for a more comfortable space could mean enjoying your apartment daily rather than feeling claustrophobic at home. Upgrading to a modest but more reliable car could spare you the stress of wondering if it'll start in the morning, even if you're now taking on a $450 monthly auto loan payment. And allowing yourself to dine out once a week or see a movie with friends could work wonders for your social life and general outlook.

It's commendable to be dedicated to retirement savings. But if you're denying yourself all manner of near-term joy, you're probably going overboard.