Ready For Retirement
Ready For Retirement
Unconventional Retirement Strategy: How to Save Less AND Retire with More
Chris was burned out. Despite enjoying aspects of his work, the relentless grind of long hours and aggressive saving left him exhausted and longing for retirement. His goal was to save as much as possible, retire in a few years, and finally spend time with his wife, travel, and enjoy life. However, James, founder of Root Financial, offered surprising advice: stop saving for retirement.
After analyzing Chris’s portfolio, James discovered that the growth of Chris’s investments was outpacing his new contributions. Continuing to save aggressively was unnecessary and came at the cost of his health, relationships, and overall happiness. By redirecting funds toward enjoying life—such as taking trips, playing golf, and reducing work stress—Chris could create a more fulfilling life today without jeopardizing his financial future.
James explains that compound growth allows established portfolios to do the heavy lifting, especially later in life. He outlines five scenarios where pausing retirement savings might make sense: when you already have enough, are on track to meet goals, feel sacrifices today are too great, lack legacy goals, or don’t need tax benefits.
Questions answered:
1. When might it make sense to stop saving for retirement?
2. How can you balance enjoying life now while preparing for retirement?
Submit your request to join James:
On the Ready For Retirement podcast: Apply Here
On a Retirement Makeover episode: Apply Here
Timestamps:
0:00 - Chris's dilemma and James's advice
2:45 - An example of compound growth
4:46 - Unbalanced living
7:12 - Having enough and being on track
8:53 - Sacrificing important things today
10:25 - Legacy goals and tax benefits
12:25 - Summary
Create Your Custom Strategy ⬇️
I gave some really simple advice to a client one time that completely changed his retirement and also completely changed his quality of life. Here was my advice to him I told him he should stop saving for retirement, and in today's video I'm going to walk you through why that actually made sense for his specific situation and the five instances where it might make sense for you as well. This is another episode of Ready for Retirement. I'm your host, james Canole, and I'm here to teach you how to get the most out of life with your money. And now on to the episode.
Speaker 1:So let's call this client Chris. Chris came to me and he was burned out. He actually kind of liked what he did for work, but he was really grinding because he could not wait to get to retirement. He felt like he didn't get to spend enough time with his wife. He wanted to do things that work was preventing him from doing because he was spending so many extra hours working and grinding, trying to save as much as possible, invest as much as possible, so that he could reach the promised land of retirement. So I ran some numbers for Chris. I looked at his projections he wanted to retire in a couple years and he was saving a lot of his paycheck.
Speaker 1:Now, after running some projections and looking at some different options, I came back to Chris and I said, chris, my advice to you is to stop saving for retirement. And he kind of paused for a second, not really knowing what to think of that advice, and I continued. I said, chris, the reason you should stop saving for retirement is because what you are doing is you are burning yourself out as you continue to save and invest so aggressively and you're missing the opportunity to actually do some of the things that you want to do along the way. Now, not just that, but I also said, chris, you already have a pretty solid investment portfolio, and what I'm gonna show you in a second, chris, is that investment portfolio. The growth on that money is actually exceeding, in terms of the impact, it's having any new contributions that you're putting in. So, chris, when we look at this, you think that what you wanna do is retire, but really what you want to do is spend more time with your wife. You want to sleep better and have your health better because you're not so stressed out about work. You want to be able to take trips and travel, but you feel like anytime you get out of the office. You end up paying for it when you return, with all the work, with all the emails, with all the projects that are stacking up while you're away.
Speaker 1:So, chris, let's look at something. What if you stop saving your 401k, you stop doing the brokerage account contributions, you stopped saving all this money for retirement and instead you took that money and redirected it to having fun? The only thing you're going to do with your money is have fun with it. You're not going to save it or invest it. Now, on top of that, you're not going to have to grind as much. You're not going to have to work so hard. You don't need to hit every single bonus target that you have, because what you have already is a significant base of assets that's going to continue growing for you, and if you are able to enjoy life and do some of these things you want to do, you're probably going to continue working more than just the next two years, because there are aspects of work that you enjoy doing, and if you continue working more than two years, I showed him what it would look like if you worked four more years. Well, in that instance, not only did you have a better time at work, were you able to do more along the way? Your financial projections, or his financial projections were significantly better instead. So what I'm going to do is I'm going to share with you the why behind all this in the five instances in which case this might be the same thing for you and stopping retirement contributions may actually be the best thing for your retirement.
Speaker 1:The first reason I recommend this came down to compound growth. So, compound growth, we've all heard it, but what does it mean? Well, let's look at an actual example. Let's say you have no money in your investment portfolio and you invest $10,000, and let's assume that you do that from age 25 to 65. Well, after year one your $10,000, assuming you made a lump sum contribution on the first day of that year that $10,000 is worth $10,800. So of that balance, the overwhelming majority of it is what you put in. A very small amount of it is growth on what you put in. Now you continue doing this.
Speaker 1:After 10 years of saving $10,000 per year and growing by 8% in terms of the growth rate on those dollars, your contributions are now $144,000. Now, once you're at $144,000, if you contribute $10,000 more, that's adding to the sum, of course, but the growth on that $144,000 is now $11,520. So what you're starting to see is that growth is almost equal parts new contribution plus asset appreciation in that portfolio. After 20 years you're at $457,000. What you're starting to see there is now growth on that is $36,560, and that is almost four times as much as the new contribution of $10,000 that you're putting in. And then, finally, after 40 years, you're at $2.6 million. 8% growth on that is $208,000 relative to the $10,000 contribution that you're putting in Now.
Speaker 1:Obviously, this is a very basic and simplistic example, but what it's illustrating is that early on in your career, the best thing you can do is put as much money as possible into investments. Later on in your career, the best thing you can do is get growth on those assets. Now, obviously, we can't control that in the same way that we can control how much we're contributing, but anytime your assets are growing, if you have a substantial enough portfolio balance, that growth is very likely to exceed the new contributions that you're putting in. So hold that thought for a second the principle of compound growth and how the more money you have in your portfolio, the more of the heavy lifting is being done by your portfolio, as opposed to new contributions that you're putting in.
Speaker 1:The second principle at play here is that traditionally, our thinking is you work, you save, you defer, then you retire and enjoy. And it's almost like this sprint to the finish line. Build your portfolio, save the assets, do what you need to do so that when you retire, then you have freedom, then you have the independence to golf and travel and spend time with your spouse and do things that you enjoy doing. But that's a traditional way of thinking and, while in some cases that's not necessarily the bad thing, a better approach is to find a more balanced way of living, because this is simple, thinking the more traditional way, and it gets the job done. But at what cost? At what cost in Chris's case was his health, it was his sanity on some days, it was his relationship with his wife, it was his ability to do the things, travel-wise or activity-wise, that he's not going to have the ability to do when he's older and doesn't have the same energy or health or vitality. So that traditional way of thinking gets the job done, but what do you miss along the way? What could have gone better along the way?
Speaker 1:So the reason, the advice I gave to Chris, which is stop saving for retirement and in doing so, you're going to have a better retirement. It worked because it allowed him to start enjoying life more. Today he is able to find more balance. Today he sacrificed less. He could take more trips. He didn't have to worry about working overtime or doing the things he wanted to do to maximize bonus potential so he could save as much as possible. He started playing a bit more golf. He started taking a few more trips with his wife. He started to give more generously, today not feeling like all these things had to wait until he was no longer working.
Speaker 1:Now here's the ironic part of all this is this sounds like just a personal gain. It just sounds like okay, that's cool for balance and quality of life. But how does that actually help financially? Well, it helps financially because all of a sudden, chris wasn't so burnt out at work Once he stopped grinding and saving and investing, but started taking time to enjoy the things along the way. He was not in such a hurry to retire in two years. He could easily go another four years, five years, six years, not because he needed to, but because he enjoyed work. He enjoyed the people he worked with. And when it wasn't such a grind, knowing that he needed to save every dollar that he made, he was able to extend the longevity of work. Going back to the compound interest example by extending the longevity of work, his portfolio was able to make more significant gains year after year after year, before retiring and starting to draw down that portfolio. Because the principle of compound interest? Because he was able to get some pretty significant growth simply by letting his portfolio do its thing, as opposed to feeling like he needed to do the thing for the portfolio.
Speaker 1:So what are the five instances where it might make sense for you to stop saving for retirement? Well, number one is you already have enough. This assumes you've done some financial projection that says if you want to retire at some age and spend some amount of money, you have to have some principal balance in your portfolio to be able to support that. It's pretty obvious. But let's say you want to retire at 65 and you're 60, and at 65 you would need a million dollars and at 60 you already have a million dollars. You don't need to keep saving for retirement. Unless there's a significant downturn that lasts over five years, you're in a position to be okay by the time that you retire and you can allow yourself to enjoy more of the income that's coming in by spending it as opposed to saving it all. So that's a pretty simple example.
Speaker 1:The second example is when you're on track to have enough money to retire. So, for example, maybe you're 55 years old today and you want to retire at 62. And today you have $2 million and at 62, you've run the projections to say what amount would you need in your portfolio at that time and you determine that you need $2.5 million in your portfolio. So this is a course where some good financial planning and projections are pretty essential to running this. But back to the example. If you need $2.5 million at 62, and today you're 55 with $2 million, you can run a calculation that says all you really need to do is have your portfolio grow by 3.25% over the next seven years and you're already on track to be able to retire. So you don't need to make contributions. You simply need a portfolio to grow by that amount. Now, is there a guarantee that that's going to happen? No, but there's a pretty high probability that that's going to happen, simply if you look at long-term growth rates, of course, depending upon how your portfolio is invested. But that's an instance where you could strongly consider do we redirect some of our new savings and investments into enjoying life along the way?
Speaker 1:The third instance when it makes sense to stop saving for retirement comes down to when you feel like you're sacrificing important things today. So this is the big one. Oftentimes, retirement is all about hitting a number for certain people. They obsess over it, they sacrifice for it, they defer for it, and then they hit it and all of a sudden it's kind of anticlimactic. Let's say that number is a million dollars. They hit a million dollars. It doesn't feel any different than when they had $900,000 or even $600,000. So they say you know what? Maybe a million dollars was just the wrong number. Let's move that to $1.5 million.
Speaker 1:Then they keep saving, keep deferring, keep sacrificing, and then one day and they have that same feeling, or I should say that same lack of a feeling it doesn't feel any different at 1.5 million than it did at one. So they keep pushing and deferring and thinking that at some magical point a certain number is going to make me feel more confident in my plan and all they end up doing is pushing the goalposts back and deferring the things they're never going to have a chance to do again. Deferring the chance to connect with their spouse and their family and the friends. De Deferring the chance to connect with their spouse and their family and the friends. Deferring the chance to be able to travel when they have their youth and their energy and the ability to do so. Deferring all these things that they can never get back, all in pursuit of something that's not magically bringing that sense of confidence or peace of mind that we tell ourselves it will. So if you find yourself guilty of that, that might be the perfect opportunity to say I need to stop saving for retirement. I'm not going to get any better sense of confidence by doing so. It's time for me to start investing and pouring into the things along the way, as opposed to deferring everything until retirement.
Speaker 1:The fourth instance where it makes sense to stop saving for your retirement is when legacy goals aren't as important. So I get, some of you are saying, james, I don't want to stop saving for retirement because it's not just me that I'm saving for. It's me and, of course, a spouse if I pre-decease them, but also maybe it's for children or grandchildren or charity, and so there's desires and intentions that go beyond just having enough for your retirement, that's great and that might be a reason to continue saving, even past the point that you don't need to. But if you don't have any legacy goals or it's not important to you to leave a bunch of money to children or grandchildren or charity, that's a reason you might want to discontinue savings, because all savings is is we're saving for future consumption. We're investing for future consumption. Well, if we've already met our future consumption needs, why keep adding to that? If we're not going to spend a whole bunch more in the future, why do that? Why invest when instead we could spend that today? We could use that for a greater purpose today. So if you don't have legacy goals or the desire to leave money to someone, it might be a good idea to stop saving for retirement today. Now, as I say that, it should go without saying that this is assuming you are on track to meet your own personal goals already. If you're not on track to meet your own goals, you should not stop saving for retirement. You can maybe come up with a more balanced and better approach to it. But these are assuming that you have enough to be on track for the retirement goals that you have.
Speaker 1:And then, finally, the fifth reason it might make sense to stop saving for retirement is you don't need the tax benefits. So one obvious thing that I think a lot of you are probably thinking as I go through this is why would you ever stop saving fully to your 401k, especially if you're getting a 401k match? Well, if you're getting a 401k match, almost certainly continue taking advantage of that. That's a 100% rate of return on your investment. Even if you just put the 401k contribution in to get the match and immediately pull it out, even if it means paying a penalty in taxes, you're still probably better off than if you hadn't done the 401k contribution at all. So still absolutely take advantage of that. But beyond that, if you're not in a really high tax bracket and don't need some of these tax benefits, well, don't continue saving. Don't continue saving to your 401k if you don't need it for the future income that it's going to create for you. So all of this is a balance. There's nuance to all of this and you should work with your financial planner, work with your financial plan to determine what makes most sense for you.
Speaker 1:But these are five common times where it might make sense to stop saving for retirement. Let your money continue doing the heavy lifting for you so that you can begin enjoying life today, as opposed to deferring everything for the future. So, in summary, as we start to wrap up this video, my advice to everyone is don't let retirement be the all-consuming goal. Let a more aligned, balanced life be the goal. So what are your main goals, both in the future and retirement, as well as today? How do we take our cash flow and our resources that we have right now and determine how to best allocate to protect ourselves in the future while not sacrificing too much today along the way? When you do this and do this effectively, you're going to have a lot more confidence and peace of mind, knowing that you're well prepared for the future, but you can also begin to enjoy life and do more today.
Speaker 1:Root Financial has not provided any compensation for and has not influenced the content of, any testimonials and endorsements shown. Any testimonials and endorsements shown have been invited, have been shared with each individual's permission and are not necessarily representative of the experience of other clients. To our knowledge, no other conflicts of interest exist regarding these testimonials and endorsements. Hey, everyone, it's me again for the disclaimer. Please be smart about this. Before doing anything, please be sure to consult with your tax planner or financial planner.
Speaker 1:Nothing in this podcast should be construed as investment, tax, legal or other financial advice. It is for informational purposes only. Thank you for listening to another episode of the Ready for Retirement podcast. If you want to see how Root Financial can help you implement the techniques I discussed in this podcast, then go to rootfinancialpartnerscom and click start here, where you can schedule a call with one of our advisors. We work with clients all over the country and we love the opportunity to speak with you about your goals and how we might be able to help. And please remember, nothing we discuss in this podcast is intended to serve as advice. You should always consult a financial, legal or tax professional who's familiar with your unique circumstances before making any financial decisions.
