Our topic on this episode of the Ready for Retirement podcast is about when you should stop saving for retirement.
Questions answered: How do I know when I no longer need to save for retirement? What are the best strategies when it comes to exploring whether or not I need to continue saving? What is the best approach for my individual situation?
Are you ready to start focusing on the things that truly matter when it comes to your financial future?
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Check us out here for more content to help you create a secure retirement: YouTube – Root Financial Partners
Key Points
- Compounding
- The money your money can make for you is incredibly significant over time and it’s one of the many reasons we invest.
- As you near retirement, it’s primarily market growth that’s growing your account balance.
- However, if you’re a new investor, it’s primarily your new contributions that’s growing your account balance.
- Example:
- From Ages 25 – 65, you invest $10,000 into an investment account each year and receive a growth rate of 8%/year.
- After one year, you’ve invested $10,000 and it’s grown to ~$10,800.
- 92% of the increase in your account was from your personal contributions.
- After ten years, your account balance would have grown to ~$144,000.
- The growth on your account exceeds the amount you’re investing.
- A $10,000 contribution isn’t as powerful as the growth that’s occurring investing in the market.
- After twenty years, your account balance has grown to ~$457,000.
- The growth on your account far exceeds the amount you’re investing.
- The growth on your account is 3.6x the amount of your contribution.
- After forty years, your account balance is ~$2,600,000.
- If the portfolio grows by 8%, this is an increase of $208,000 in the 40th year.
- The increase of market growth is 20x as much as a $10,000 contribution.
- Perspective
- Why do we save? Why do we contribute to our 401(k)? At what point are the tax benefits of the future costing enjoyment today?
- Example: Let’s assume your 50s are your peak earnings years and you’re maxing out your accounts for retirement, but that a financial plan shows you’re already on track for retirement.
- So often I see people over-save for retirement when their goals are met.
- Intentional Approach
- I believe more people would have much more enjoyment if they were intentional about how much they’re saving today and how much they need in the future.
- Be intentional about your retirement goals so you don’t have to sacrifice years where you could have been enjoying the most of your hard-earned wealth.
- Case Studies
- I’ve had clients who couldn’t wait to get to retirement because they were burned out from work.
- What did I prescribe them? After an analysis of their financial plan, I recommended they stop saving for retirement.
- My clients looked so confused, they even mentioned, “Why would I stop saving for retirement if I want to retire as soon as possible?!”
- My clients continued to work, but they were able to start enjoying life outside of work more and all of a sudden they were able to enjoy the fruits of their labor.
- These clients had saved enough over many years that it allowed their portfolio to continue growing for them much faster than contributions would have.
- Longevity of Work
- Often times people get burned out by the amount of work they’re doing that they just can’t wait for retirement.
- By saving less for retirement once your portfolio growth is in a sufficient position to build wealth, although it sounds contradictory, it can often lead to more work because of the increased enjoyment outside of work.
- It’s about balancing work today and the work you’ve done all your life to enjoy both today and retirement.
- Often times people get burned out by the amount of work they’re doing that they just can’t wait for retirement.
- I’ve had clients who couldn’t wait to get to retirement because they were burned out from work.
- Work Longer
- Can you continue working if work isn’t such a burden?
- Each year you don’t draw down from your portfolio allows your portfolio to grow for you and compound.
- As soon as you create a work-balance lifestyle that allows you to feel less stressed, you may find you’re in a position to work more and this will allow yourself to enjoy the hard work you’ve done up until this point and feel confident you will also be able to retire comfortably.
- Can you continue working if work isn’t such a burden?
- When Can I Stop Saving For Retirement?
- When You Have Enough
- Countdown to Retirement: Do You Have Enough Money?
- It’s not bad to continue saving for your retirement, but you may not have to.
- When You’re On Track To Retire
- Example: You determine you need $2.5 million to retire at age 62 and today you’re 55 with $2 million in your portfolio.
- You may determine you want to keep saving to reach $2.5 million as quickly as possible, or you may want to look at what it looks like if you were to completely stop saving.
- If you stop saving and you have $2 million today, 7 years until retirement and want $2.5M at age 62, you would need a 3.25%/year to have $2.5 million at age 62.
- It’s about asking yourself whether you want to ensure at age 62 that you are completely free from ever working again, or potentially spend more today and still retire at age 62.
- It comes down to what’s most important to you.
- If your employer is offering an employer match,
- Example: You determine you need $2.5 million to retire at age 62 and today you’re 55 with $2 million in your portfolio.
- When You Feel You’re Sacrificing What’s Most Important
- Do you feel you’re not able to do some of the things that are most important to you today? Would you be willing to work longer in exchange for not having to save as much today?
- I define “important things” as things you can’t ever get back.
- Examples: travel, time with grandchildren, etc.
- So often people wait to hit a “retirement number”, but nothing changes when they reach that number.
- It’s not about waiting to hit a retirement number to be happy, it’s about taking steps to be happy today and have a plan to ensure you’ll be happy in the future as well.
- Legacy Goals
- Do you want to support your grandchildren’s education? Do you want to support certain organizations?
- If you have important legacy goals, it’s not bad to keep saving and investing because you’re doing that for future generations.
- If you don’t have legacy goals, you can consider discontinuing retirement savings.
- Do you want to support your grandchildren’s education? Do you want to support certain organizations?
- Tax Benefits
- If you have enough to retire and don’t need the tax benefits, you can view retirement savings as optional as opposed to something you can keep doing.
- Don’t let retirement be the goal, let an aligned life be the goal.
- What’s most important to you?
- Invest in a way where the things that are most valuable to you allow you to live your desired life.
- When You Have Enough
Timestamps
1:00 – We’re on YouTube!
3:01 – Growth v. Contributions
5:13 – Why Are We Saving?
6:59 – What Do You Want To Do Today?
9:29 – Case Study
13:19 – When You Should Stop Saving For Retirement
14:29 – Are You On Track?
17:47 – Legacy Planning
19:18- Aligning Your Investments With Your Financial Goals
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