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Pity the Retirement Hoarder

BOSTON ( MainStreet) -- Few days pass without some new study or survey reinforcing a dire message that Americans are not saving enough for a comfortable retirement.

For some, that message may actually be detrimental. While true that many -- perhaps most -- are dangerously behind with their savings timeline, even those with a suitable nest egg are prodded continually into saving more. Some run the risk of saving too much, of letting their lives be dictated by compulsive frugality. Think of them as the financial equivalent of hoarders. They're so dead set on accumulation that they find it psychological torture to spend anything.

Some retirees could never spend all of their money, given their frugality, but still worry about running out of money or not having an inheritance to leave their children.

Ted Bovard, principal and financial consultant for Fort Pitt Capital Group in Pittsburgh, says his firm has high net worth clients who fall into this category. Even though they could never spend all of their money, given their frugality, they still worry about running out of money in retirement or not having an inheritance to leave their children.

As an example, one client, despite having a $9 million nest egg, called to seek advice on whether she could afford to buy a new clothes dryer.

"We have clients who have $6 million to $7 million saved and they ask, 'We were thinking about giving money away to this school, or this charity, or the grandkid -- do you think we can do it?' Well, how much money are you thinking of giving away? 'Probably just the gifting limit for the grandkids, maybe $13,000 times three or four.' Well, I think with $7 million you are OK," Bovard says.

"There is nothing wrong with being careful, but you can overdo it, says Peter D'Arruda , president of Capital Financial Advisory Group in Cary, N.C. "It's like the skinny squirrel who stores a bunch of nuts in a tree over and over again, but doesn't eat them. He just runs off looking for more nuts. Then termites get in there and when squirrel comes back the tree's not there anymore."

D'Arruda uses that fable-like example to explain that the fear of depleting assets doesn't just lead investors to take on an unhealthy degree of risk; they can also err on the side of perceived safety.

The fear of running out of money isn't always without merit, he says, pointing to the "biggest risk of all" -- the eventual need for long-term care. With these needs in mind, he urges clients to create an income stream and hedge against future expenses with various annuity and life insurance policies that include long-term care riders. What he doesn't advocate is relying on so-called "safe" investments -- including cash, CDs and other bank products -- to provide peace of mind.