This Is When You Can Stop Saving for Retirement, According to Kevin Lum
Retirement can feel like a long game of saving, making it hard to know when or if, you can stop. According to Kevin Lum, a certified financial planner (CFP) and money expert, there comes a point when continuing to max out retirement accounts may no longer meaningfully improve your financial future.
Instead of staying on autopilot, he offers pre-retirees some better suggestions.
Stop Saving Only When the Math Says You're Ready
Rather than focusing on how to save more, Lum suggested that people approaching retirement ask whether more savings will really change the outcome of their retirement plan.
The simplest way to do this is with something called “the funded ratio,” he said. “Compare what you've already accumulated to what you actually need to support the lifestyle that you want in retirement."
Then, you can see if continuing to max out your savings is the best plan or if this money might be better put toward something else, like a long-term care plan or a travel fund.
"This is very bare bones analysis," he said. "It's just kind of back-the-napkin math to help you understand, does it make sense to keep saving?"
Calculate How Much Your Portfolio Actually Needs To Cover
Lum's ratio shortcut starts by estimating annual retirement spending, subtracting guaranteed income like Social Security or retirement accounts, then dividing the remaining gap by 4%, the commonly recommended withdrawal rate.
The result is not a “perfect number,” which Lum said isn’t the point anyway, but it gives you “a directional read on where you stand” that can help you decide if you can “pull [your] foot off the gas.”
Retirement Doesn't Have To Begin the Day You Quit Working
Another of Lum's biggest arguments is that retirement doesn’t have to happen all at once. He described the transitory period of a retirement slowdown rather than full break as “an underutilized window in financial planning."
That can either mean stepping down from a full-time job to part-time, or feeding some of your goals and expenditures into your pre-retirement years.
"Who's to say that you have to wait to do the things you've been planning to do in retirement until someday when you finally quit?"
Big purchases, such as vacations or vehicles, can be easier while still earning a paycheck after all, Lum said. There’s a gray area in between saving aggressively while working and retiring and finally starting to live.
Start Living Before Retirement
Lum illustrates the concept of “living before retirement” through a client example (whom he dubbed Jim and Pam), who had accumulated approximately $3 million and were still maxing out retirement contributions. After confirming the numbers worked, they redirected tens of thousands of dollars each year toward travel and home improvements instead of continuing to save at the same pace.
Financial planning validated they were already on track and allowed them to redirect toward things they’d wanted to do for a while, Lum said.
"Before we made that call, we made sure that the math said that they were actually ready."
Don’t Stop Planning — Just Plan for Different Phases
Lum said that retirement planning shouldn't end once someone stops working.
“Retirement is not one flat line. It can be a series of phases,” he said: ones with different tax strategies, withdrawal needs and opportunities like Roth conversions. Thinking several years ahead can create more flexibility than simply reacting as circumstances change.
When working with his clients he said they "build a system around the life that they want to live,” that helps remove the emotion and the uncertainty from the plan. After all, "Preparation beats reaction."
Once the math shows you're on track, it may be time to balance preparing for retirement with actually beginning to enjoy the life you've spent decades saving for.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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