When Is It Time to Stop Saving for Retirement?

By Chris Duderstadt

August 7, 2023

When Is It Time to Stop Saving for Retirement?

Key Points – When Is It Time to Stop Saving for Retirement?

  • Can You Stop Saving for Retirement?
  • Building Confidence in Your Finances
  • Net Worth, Tax Allocation, Income Sources, and More
  • 5 Minutes to Read | 9 Minutes to Watch

When Is It Time to Stop Saving for Retirement?

Our team talks all the time about how critical it is to start early with saving for retirement. But when is it time to stop saving for retirement? “Stop saving for retirement” probably sound like three words that don’t go together, but there is a time for some people to stop saving for retirement. Drew Jones is going to help us with getting to the bottom of that.

It’s not uncommon when our advisors are putting together a detailed financial plan to see that it’s fully funded and has a high probability of success. It’s after that realization that we start looking into when it’s time for someone to stop saving for retirement.

What do you want to do once you reach the point of what Dean Barber calls financial independence? That’s when you no longer depend on a paycheck to do what you want to do each day. You can retire and live your desired retirement lifestyle without the fear of running out of money in retirement. And if you want to keep working, that’s fine too. But just know it’s up to you once you’ve reached financial independence and that you can stop saving for retirement.

How Do You Build Confidence in Your Finances?

One of the main reasons that we see someone decide to continue working and keep saving for retirement when they might not need to is that they don’t have the clarity that they can stop saving for retirement. Let’s review some areas that you’ll want to look at in detail so that you can retire with confidence.

“You’ll want to get some honest answers for yourself whenever you start to consider if you should stop saving for retirement and if you should retire. Should you start spending money on those things that you’ve always wanted to spend money on? In the years past, you might not have felt that you could spend money on those things because you needed to save for retirement.” – Drew Jones

Things to Review to Determine If You Can Stop Saving for Retirement

1. Your Current Net Worth

The first thing that you need to look at when figuring out if you can stop saving for retirement is your current net worth. That’s your assets, such as investments, savings accounts, property, etc. minus any liabilities, such as mortgages, credit card debt, car payments, etc.

“It’s good to know what your current net worth is as you go into retirement because it will lay out the path for your retirement.” – Drew Jones

2. Tax Allocation

The next big thing we want to look at is tax allocation. Let’s review the three tax buckets.

  • Taxable: Brokerage, checking, and savings accounts.
  • Tax-Deferred: Traditional 401(k)s/IRAs and 403(b)s
  • Tax-Free: Roth 401(k)s/IRAs

Your taxable accounts are money that has already been taxed. Sometimes, we see people saving too much to the tax-deferred bucket. It helps them from a tax perspective at that time, but they don’t realize that it paints an ugly tax picture for them down the road. The tax-free bucket is money that you’ve already paid tax on, but the growth in the account accumulates. Assuming you meet certain rules, any distributions will come out tax-free as well.

3. Income Sources

The third thing you’ll want clarity on when figuring out if it’s time to stop saving for retirement is your income. You want to know what your income is while you’re working so you can put together a budget and see what you’re saving. What are you allowing yourself to spend?

You’ll also want some clarity on your retirement income sources. Those income sources could include Social Security, pensions, and what you’re planning to pull from your investments. Which of those three tax vehicles are you going to pull from?

4. Setting Up a Spending Plan for Retirement

Number four on our list of things to review is having a budget. You’ll want to know what your spending budget is since it will tell you the items you’ll continue to spend on in retirement and clarity on what you’re saving.

“This is where you’ll need to have conversations with your spouse about what you want out of retirement. What do you think you’re going to continue spending on in retirement? What things do you need to prioritize and focus on? Health care is a big expense that a lot of people don’t anticipate. When you’re working, health care is heavily subsidized by your employer. But when you retire, especially if it’s before 65, that’s something that you need to look at and figure out how much you want to budget or spend.” – Drew Jones

5. Having Conversations with Your Partner

We touched on this in the last point, but having conversations with your partner is critical when you’re determining when it’s time to stop saving for retirement. It’s critical to get clarity surrounding you and your spouse’s needs, wants, and wishes in retirement.

“You’ve spent your entire life saving to get to this point of retirement. If you could spend more on travel, wouldn’t you want to know it? Or maybe you want to help your kids out with their wedding or first home. What are those things that are important to you on your journey to and through retirement?” – Drew Jones

6. Breaking Down Risk

The sixth item to review when determining if it’s time to stop saving for retirement is risk factors. That’s something that people might not think about very often. But these are the things that might wake you up at 2 a.m. or 3 a.m. that cause you some concerns.

“Things you can run risk analysis on include market volatility. If we experience a 20% loss in the market, what does that do to your plan? What if we see higher taxes? What if we see higher inflation? Or what if health care costs increase at 10%, 15%, 20%? There are all these headwinds that you don’t know if they’ll come our way. But what you can do is stress test for those things you’re concerned about. If you end up facing those concerns, what do they do to the confidence of your plan?” – Drew Jones

7. Leaving a Legacy

Leaving a legacy is very important to a lot of people. Legacy can include your kids, grandchildren, other family, and charity. If you can stop saving for retirement, maybe you can start giving to your loved ones or charity while you’re still living. That way, you can see your legacy making a difference.

Or maybe leaving a legacy isn’t quite as important to you and you’re more focused on satisfying your needs, wants, and wishes. Then, whatever is left after that, you’re loved ones will inherit or it will go to charity.

8. Understanding That Time Is Your Most Valuable Asset

There was one asset that we didn’t list in our first point about net worth, and it happens to be our greatest asset. That’s time. Time with your loved ones is more valuable than any of your monetary assets. You can stop losing time doing the things you love by building a plan that can help give you more confidence, freedom, and time.

Do You Know If You Can Stop Saving?

Maybe you feel like you have enough to retire. But how do you know if you have enough to stop saving for retirement? As a CFP® Professional, Drew knows that it’s his job to help facilitate those conversations and figure out what’s important to both spouses. Both spouses usually end up being on the same page after those conversations, but they can learn a lot about each other during that process.

If you’re unsure of if it’s time to stop saving for retirement, go through the steps we just reviewed. You can start that process by scheduling a 20-minute “ask anything” session or complimentary consultation with one of our CFP® Professionals. We can meet with you in person, by phone, or virtually—it’s whatever works best for you.

It All Starts with a Plan

And if you don’t feel like you’re quite ready to meet with a CFP® Professional, we have another way we can assist you as you determine when it’s time to stop saving for retirement. We’re giving you access to our industry-leading financial planning tool. You can use it at no cost or obligation from the comfort of your own home to start building your plan. Just click the “Start Planning” button below to begin building a plan that can help give you more confidence, freedom, and time.

Stop Saving for Retirement

Start Planning

If you have any questions as you’re building your plan, we can screen share with you while using our tool to bring some additional clarity to the early stages of the retirement planning process. We hope to hear from you soon to help you figure out when it’s time to stop saving for retirement.

Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management, LLC, an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management, LLC does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.