When is it time to stop saving for retirement?

Everything we read, everything we hear, everything we intuitively feel about retirement -- after reading what us "experts" have to say -- tells us that we'll probably never be prepared enough for retirement. The very thought of stopping the process of saving for retirement smacks of detached, illogical thinking.

However, I would argue that there does come a time to stop saving for retirement, and there are two paradoxical ways of describing it: (1) you should stop saving for retirement sooner than you think, and (2) you shouldn't stop until you're fully ready to retire.

What does "retirement" mean anyway?

There are a couple of massive misconceptions we need to clear up before I get to how this advice can help you. The first is that by "retirement," I don't mean playing golf all day, or traveling the world. Those activities are great, but that's not what retirement is really about.

A study by Merrill Lynch and Age Wave found that there's a fundamental shift in the approach to "leisure" once we hit retirement. They described it by saying:

Rather than viewing retirement as the finish line, nine out of ten (88%) retirees now describe it as an opportunity for new beginnings, bringing greater freedom and flexibility and often an entirely new state of mind.

What is the difference in this new state of mind? The authors wrote that:

Leisure before retirement ... is restricted, mostly to evenings, weekends, and vacations. [It] is often about relaxation and de-stressing. Leisure after retirement ... is abundant. [It] is often about engagement, connection, and activity.

In other words, retirement isn't about "working" or not "working." The choice about what to work on and when to work on it, however, is completely at the discretion of the individual. How does this newfound autonomy sit with retirees? Incredibly well.

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Image source: Merrill Lynch/Age Wave.

There's no group of people more relaxed, content, happy, and un-anxious than those 65 and over.

Retire as soon as possible!

This leads to my second major misconception: I don't think any of us should wait until some predetermined date to retire.

Instead, I think we should "retire" as soon as possible. Again, by this, I don't mean you should necessarily stop working in your current job. Rather, I mean you should become financially independent as soon as possible. Famous blogger Mr. Money Mustache put it best when he said, "Work is better when you don't need the money."

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The single most crucial and important step to accomplishing this is figuring out what your own level of "enough" is. By that, I mean determining how much house we really need, how many gadgets we really need, how many degrees from fancy institutions we really need to be happy.

Psychologist Sonja Lyubomirsky has found that when it comes to what makes us happy as human beings, the breakdown looks like this.

What Makes Us Happy?
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Data source: The How of Happiness.

This is an astounding fact. In our culture, we are consistently led to believe that once we own that house or that car, or have that job, we'll finally be happy.

But all of those things fall under "Life Circumstances." As you can see, in the realm of what you actually have control over, Life Circumstances are only one-fourth as powerful as intentional activities. That's because of hedonic adaptation: We get used to the nice things we buy ourselves, or the titles we attain.

So, what are "Intentional Activities"? Lyubomirsky has a long list, but it can be boiled down to:

  • Investing in personal relationships

  • Committing to meaningful goals

  • Taking care of your body and soul

  • Living in the present

  • Practicing gratitude and positive thinking

  • Learning coping strategies for difficult times

These may seem overly simplistic and cliche, but the research has backed these approaches. The disconnect arises because it's very difficult to practice these activities if we're spending 40 to 60 hours per week in a job we feel forced to work in.

While we could aim to become billionaires to solve this problem, a far easier and healthier approach is to determine our level of material "enough."

I believe if we sit with this question long enough, we'll be surprised by how little we actually do need.

Tying it all together

This brings us back to the original assertion that we should save until we are financially independent. Some will say that if -- by age 30 -- you have $250,000 saved up, then you can stop saving because Social Security plus whatever your nest egg will grow to will provide everything you need in retirement.

But I see three problems with this approach:

  1. If the freedom of financial independence is important to you, then you rob yourself of this by scaling back your savings.

  2. Unless you are giving the money away -- which can actually be a very healthy practice -- you will likely spend more money because you aren't saving it. That only increases your spending and activates the corrupting power of hedonic adaptation.

  3. The future is unknowable. You might look at your $250,000 and assume it'll earn 8% per year. But that isn't guaranteed. And neither is the contribution of Social Security.

So yes, I do believe you should continue saving until you can officially "retire," but I also think that with some mindful introspection, that day could arrive much sooner than we might expect.