As a responsible retirement saver, you’ve maxed out your 401(k) every year, received a full match from your employer and even taken out an IRA to which you have contributed the maximum amount allowable. Now you discover you have arrived at that magic number you calculated would fund your retirement lifestyle—even though you have a few more years of potential savings to go. Do you need to continue saving for retirement? It would be nice to take a “savings break” before leaving the workforce, but is it logical? Is it smart?

How Retirement Saving Works

Your retirement savings likely includes one or both of two types of accounts:

Employer-based
This involves a 401(k), 403(b), 457 or TSP that is either fully or partly (through matching) funded by your employer. Typically, employer-based accounts let you defer taxes on contributions and earnings until withdrawal at retirement. Some allow your contributions to be after-tax in a Roth arrangement. Employer contributions are almost always pretax.

Individual
This refers to self-funding of an account you own. Typically an individual account is either a pretax Traditional IRA or an after-tax Roth IRA. If you’ve been saving a long time, you may have both.

When it comes to a decision to keep saving or to stop, reasons to do either are abundant.

Reasons to Stop Saving

If you believe your nest egg is sufficient to carry you through retirement, that plus one or more of the following rationales may encourage you to stop saving.

Unexpected Expenses
Perhaps the desire to replace a worn-out automobile calls you to redirect your savings. Or the need for a new roof on the house. Or financing an additional year of college for a child.

Treating Yourself
Maybe you just want to travel to Europe or buy a new boat. It might make sense to take advantage of these opportunities now, while you are still earning a living (and your knees work), if you feel your retirement is secure.

Recalculated Retirement
In retirement you will no longer pay Social Security/Medicare taxes or have some of your current work-related expenses for commuting, clothing or meals. This will lower the amount you’ll need to pay expenses.

Debt Freedom
If you have no debt, that’s another factor that reduces expenses and could make further saving seem unnecessary.

Opting to Invest Elsewhere
You might decide you want to direct future investments into a Roth IRA so you can access your contributions at any time for any reason without penalty.

The Start of RMDs
If you have reached the age of 70½, you will be prevented from further investment in a Traditional IRA and will have to begin taking required minimum distributions (RMDs).

Reasons to Keep Saving

Before you pull the plug on saving, you may want to consider the following reasons to keep investing, even if you don’t feel you need to:

Lost Earnings
In addition to contributions, you will lose significant earnings depending on how long your “savings vacation” lasts.

Lost Matching
Employer matching goes away when you don’t contribute. Are you willing to give up “free money?”

Inflation
Even if you have allowed for inflation in your calculations, what if you have underestimated?

Lifespan
You may live longer than you think you will—perhaps a lot longer. If you do, you might wind up needing more money than you have set aside.

Medical Costs
With longer life comes the possibility of expensive medical costs. And, of course, there’s the possibility of a need for long-term care.

Burden on Family
Like many people, you probably don’t want to be a burden to your children.

Inheritance
If you were to run out of money, it would mean no inheritance for loved ones.

Lower Earnings
The stock market could perform worse than expected.

Increase in Fees
The fees you pay for your investments could increase, cutting into your earnings.

Higher Withdrawal Rate
Due to unforeseen circumstances, you might be forced to withdraw funds at a higher rate than planned, making your savings dwindle more quickly than expected.

Lifestyle Changes
You may decide you want a higher standard of living in retirement.

Decision Time

Some experts suggest that when passive income is sufficient to cover expenses and you are debt free, it’s OK to stop saving for retirement. This assumes, of course, that you believe none of the reasons to keep saving listed above will have a significant impact on your finances.

Carefully consider both sides before ending your retirement savings regimen. Consult with a trusted financial advisor to make sure the numbers add up the way you think they do. And, of course, you could save a bit less without stopping completely.

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