If you retire at $4.2 million, you’re ahead of the game. According to Federal Reserve data, the average retirement account balance for Americans between 65 and 74 was around $609,000 as of 2022.
If you use the 4% rule to manage that large balance, you are considering an annual withdrawal of $168,000 that doesn’t take into consideration adjusting for inflation. And that’s what Social Security is going to pay you.
But retirement for $4.2 is one thing. It’s another thing to approach retirement with the desire to spend it entirely, rather than saving that much of your money and ultimately your salary.
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$4.2 million may be $600,000, but for a variety of reasons, I don’t want to retire until I’m 65. I want to enjoy my work, love everyday things, and keep my health insurance work down until I’m qualified for Medicare.
That situation raises doubts: can you stop savings for retirement and simply grow $4.2 million for another five years? Or do you need to push yourself to save a little more during that final stretch?
If you don’t fund your nest eggs anymore
Getting closer to retirement at $4.2 million is a great feat. And even if you start taking that money at age 60, you will be in a good position to stretch your nest eggs as long as you need it.
Even better if you’re not aiming to start spending that money for another five years. With a conservative 4% return, the 60 $4.2 million portfolio could grow to $5.1 million over five years.
Aaron Cirksena, founder and CEO of MDRN Capital, believes that anyone in this situation is doing great things. And he thinks it’s okay to stop saving at this point, as long as you’re looking at the big picture.
“In most cases, if your retirement plan is solid and fully funded, it makes sense to loosen the reins a little,” he explains. But he also has some warnings.
“Inflation, healthcare costs, tax law changes can all be reduced even with big nest eggs, so before switching from saving to spending, we will run future income, expected withdrawals and the number of worst market scenarios.
One of the things he suggests is to revisit your predictions each year and park some of the “fun money” you no longer store in your liquid low-risk account.
“If that happens, if something changes, there’s still a buffer without having to tap your retirement account early,” he explains.
You may want to continue funding your nest eggs for tax benefits
If you accumulate $4.2 million by the time you’re 60, you don’t necessarily have to continue saving for retirement, but you’ll need to consider funding an account like the 401(k) anyway. This is especially true if you earn big incomes (this may be the case if you have $4.2 million by the age of 60).
“If you’re high income, you may want to withdraw from other sources of savings to fund your increased cost of living, but you will still maximize your pre-tax retirement savings for tax deductions,” says Highland.
A proper case: As Highland explains, those over the age of 50 can contribute $31,000 to a 401 (k) before tax in 2025 and receive a deduction for their contribution. If you’re in a 32% tax bracket, that deduction is worth almost $10,000.
In these circumstances, saving the traditional 401(k) may be beneficial, as tax credits are invaluable, even if they mean withdrawing from other assets, Highland explains.
Highland also proposes funding the 401(k) in this scenario, which is just an employer match.
“Even if your employer offers a 401(k) match, you can still save the minimum amount you need to get that full match,” he says. “That employer’s match is effectively a very high risk-free profit in small savings, so it’s worth it if possible.”
Finally, Hylland said if you are increasing spending in the last few years in the workforce, if you are expecting future retention, check out those high-cost retirement planning factors.
As he explains, “If you save $20,000 a year and spend $100,000 a year on living expenses, you might calculate your retirement savings goal and cover $100,000 in retirement spending.
A $20,000 annual difference in retirement costs could change your savings goals, Hyland warns. And, as Highland says, “If you quit your job, you don’t necessarily have to continue spending at a higher rate, but “that lifestyle increase can be difficult to settle once you retire.” Therefore, it is important to rerun the numbers before deciding to stop savings for retirement altogether.
