Why this financial advisor has found that some clients save too much money

·Senior Producer and Writer
·3 min read

Penny Pennington became Edward Jones' sixth managing parter in 2019 and has worked with the firm since 2000 as a financial advisor. In a conversation for Yahoo Finance’s All Markets Summit: The Path Forward, she laid out how she advises her clients to save more money for retirement.

But she also noted that at least some of them seem to take the advice perhaps a bit too much to heart.

Pennington said she's “often had a harder time convincing people that they really could spend the money that they had saved for all those years.”

That’s “another part of what a good financial advisor does,” she added.

Pennington says that reassessment of priorities and even more focus on saving has been a fundamental change that has come out of the pandemic, where people have “gotten in touch with what's really important in their lives and the legacies that they want to leave to their children, to community organizations, to things that they're passionate about."

It’s a trend that has been documented before – many higher-income retirees overestimate how much they’ll need and actually “end up getting wealthier in retirement” as their investment returns exceed their expenses.

One measure found that wealthy retirees often can have a consumption gap as high as 53% – meaning they only spent about half of what they generate in income from investments and savings. The trend clearly applies mostly to those in the highest-income brackets who have the means to save more than they'll need.

Fidelity's most recent quarterly retirement analysis from August found that average retirement account balances increased to record levels for the third consecutive quarter. The average 401(k) balance was $129,300, up 4% from the previous quarter and 24% from 2020.

Getty Images
Edward Jones Managing Partner Penny Pennington says she has to tell some clients that they can and should spend the money they've managed to save. (Getty Images)

However, on the whole, a quarter of Americans have nothing saved for retirement, according to a PwC report, and even most of those who do aren’t saving enough. A recent report found that the median retirement account balance for 55- to 64-year-olds is $120,000, which could generate very modest returns of less than $1,000 per month.

Pennington says that those able and inclined to save in excess of their needs are often shaped by “critical impacts on a saver's or investor's life, especially during their formative years.” 

Many current retirees or near retirees also lived through previous crises like the financial crisis of 2008 which saw the market set records for single-day drops and then taking years to recover.

Pennington says she views her role as akin to "a sherpa, someone who is helping a family up and down the mountain tops of good times and bad times in the marketplace," – the these downturns, she says, taught some savers to be "very, very careful.”

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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Yahoo Finance's All Markets Summit
Yahoo Finance's All Markets Summit
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