Question: I'm 57 with $4.1 million and looking to retire abroad in a few years. I no longer see the point in contributing to my 401(k). Am I wrong?
Answer: As of 2022, the typical 57-year-old had $185,000 in retirement savings, according to the Federal Reserve. So if you’re 57 with $4.1 million socked away for your later years, you’re in remarkably good shape. This holds true whether your intent is to retire abroad or not, as both have pros and cons from a financial perspective.
However, you may wonder whether it pays to continue funding your 401(k) plan at this stage if you plan to retire abroad in a few years. You’ve probably got enough savings that if you were to work a bit longer and let your balance grow, you’d be well-positioned to retire in your early or mid-60s. Halting those 401(k) contributions, meanwhile, means freeing up more money to spend in the near term.
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But there are some big drawbacks to pulling the plug on 401(k) contributions, even with plenty of savings in your pocket. So it’s important to weigh your options carefully.
Hitting stop on your savings means giving up benefits
It’s one thing to retire on $4.1 million at 57 and another thing to stop funding a retirement account at 57. Although 57 isn’t such a young retirement age, it could mean having to stretch your nest egg further. But if you’re thinking of retiring in your 60s and are simply looking to stop funding your 401(k) during your last few years of working, that’s a different story — and a lot less risky.
Still, Brett Bernstein, CEO and Co-founder at XML Financial Group, says it’s important to recognize that there’s really no such thing as having too large a 401(k) balance.
“I believe one shouldn’t make a rash decision to pull the plug on contributions to a retirement plan based on their age or account value,” he says. “A well-thought-out, holistic financial plan should be created to determine if you need to continue contributing to a retirement plan to meet your retirement goals.”
Aaron Cirksena, Founder & CEO of MDRN Capital, also cautions savers who have accumulated a lot of money at a certain point to consider the downside of halting retirement plan contributions.
“The real question is not ‘Can I stop?’ but ‘What do I lose if I do?’” he says. “Every extra [401(k)] dollar stowed away lowers your taxable income today and keeps more of your money working for you. If your employer is still offering a match, that is basically free money you would be missing out on.”
Of course, there’s also the fact that 401(k)s impose an early withdrawal penalty to think about. If you’re inclined to tap your savings before age 59½, then you may want to stop contributing to a 401(k) and focus instead on a taxable brokerage account with restrictions.
On the other hand, if you’re already 57 and are still planning to work a few more years, early withdrawal penalties may not be an issue. That makes the argument to continue funding a 401(k) at least up to the point of your employer match.
Retiring abroad changes things — for better and worse
Both Bernstein and Cirksena believe that retiring abroad should factor into the decision of whether to continue funding a 401(k).
As Bernstein says, “Retiring abroad requires some additional planning, including, but not limited to, currency conversions, fluctuations, and tax considerations. Once those aspects are taken into consideration, the costs could be less.” However, he says, they may not be.
Cirksena says, “In countries with lower costs of living, your money will go further, and that can make the idea of stopping contributions feel even safer.”
However, Cirksena cautions, "Retiring abroad is never as cheap and simple as it looks. You will most likely face surprise costs like visa requirements, foreign taxes, or you may need to keep some U.S. accounts open for some reason."
He also points out that retiring abroad could mean traveling back and forth to the U.S. frequently to see friends and family, which could result in a big financial strain. That’s why, Cirksena says, “keeping up contributions, even if at a reduced level, can still make sense.”
Bernstein also notes that life can throw retirees many curveballs, regardless of where they live. Home repairs, health issues, and family obligations can all eat into retirees’ nest eggs, making the argument that continuing to contribute toward retirement to some degree is a pretty smart choice.
All told, for this situation, Bernstein says the key is to make a smart decision for the future given the unknowns of retiring abroad (or retiring in general) without denying yourself too much in the near term.
“I believe someone should save as much as they can when they can to be there for the future, but don’t save so much that you cannot enjoy the journey along the way,” he says.
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