Should You Keep Investing After You Hit Your Retirement Number?

Financial experts weigh in on the dilemma of whether to continue saving and investing after reaching your retirement goal.

Reaching your retirement number, the amount of money you need to afford retirement, is a significant milestone. But once you’ve achieved this goal, what should you do with any additional savings? Should you keep investing to grow your retirement portfolio, or are there better uses for that money? Financial experts offer different perspectives on this dilemma, providing valuable insights for those navigating their post-retirement financial decisions.

1: Paying Off Debts Before Retirement

Certified financial planner Brian Preston suggests that, in this situation, it is generally wise to prioritize paying off any outstanding debts, including mortgages, before retirement. While there is some flexibility in terms of the timeline for paying off a mortgage, Preston advises considering whether it is feasible to pay it off all at once or gradually leading up to retirement.

2: Acting Like a Bear Going Into Hibernation

Preston recommends adopting an approach of “acting like a bear going into hibernation” by continuing to grow your retirement portfolio even after reaching your retirement number. He suggests exceeding your retirement goal to better manage potential financial insecurity during the initial years of retirement. This strategy allows you to have a cushion of additional funds to rely on.

3: Financial Independence and Flexibility

Certified financial planner Bo Hanson offers a different perspective, emphasizing that reaching your retirement number signifies financial independence. Hanson believes that achieving this milestone grants individuals the freedom to decide what to do with their money. Some may choose to save and invest more, while others may prioritize paying off debt, such as becoming mortgage-free in retirement.

4: Evaluating Interest Rates and Risk

Hanson acknowledges the unique interest rate environment and suggests considering the potential arbitrage between mortgage rates and cash savings rates. For individuals with low mortgage rates, such as around 2.5%, it might be more beneficial to keep their money growing in a savings account at around 5%. Hanson proposes waiting until after the first year of retirement, once the transition is settled, to pay off debt.

5: Balancing Wealth Preservation and Risk Reduction

Preston argues that staying wealthy often involves de-risking, and one way to achieve this is by paying off your mortgage before retirement. By eliminating debt, individuals can reduce financial obligations and potentially have a more secure retirement. However, the decision to prioritize paying off debt or continuing to invest ultimately depends on an individual’s comfort level with risk and their specific financial circumstances.

Conclusion:

There is no one-size-fits-all answer to the question of whether to keep investing after reaching your retirement number. Reaching this milestone provides flexibility and allows individuals to make decisions based on their unique financial goals and circumstances. Some may choose to reduce risk by paying off debt and exceeding their retirement number, while others may prefer to take advantage of favorable interest rates and continue investing. Ultimately, the key is to strike a balance between wealth preservation and risk reduction, ensuring a secure and enjoyable retirement.