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One of the biggest headaches associated with investing for retirement is that you don't know how much you'll end up with at the end of your journey, or even at any point along the way. How much you sock away, how long you keep investing, and what rate of return you get are all key variables in the equation.

While you can make plans around each of those factors, the reality is that you won't know the size of your retirement nest egg with certainty until it's time to tap it. As a result, if you save aggressively with enough to compensate for those unknowns, you may find yourself with "enough" in your retirement accounts like your 401(k) and IRA, well before you're ready to retire.

How much is enough?
Most of us have at least a vague idea that we need to save for our retirements -- and have a sneaking suspicion that even if we are saving something, we should be saving more. Indeed, a decent rule of thumb is that you should target about 25 times a typical year's spending power you expect to need from your nest egg. That level of savings gets you covered by the 4% rule for retirement -- a set of guidelines for spending your retirement portfolio that gives you a very strong chance of not outlasting your savings.

That doesn't mean 25 times your current income or even 25 times your expenses; it's 25 times the annualized costs your portfolio needs to cover. You can back out the costs you'll no longer be paying when you stop working and factor in Social Security and any pension you might be eligible to receive. Once you do that, you might find the annual money your portfolio needs to generate is less than you initially expect. If you haven't reached that point yet, you've still got some saving to do.

Can you really have too much of a good thing?
Once you do get there -- congratulations! On the scale of life's problems, there are plenty worse than having lots in your retirement accounts. Still, over-saving for retirement takes money away from your other life priorities like your family, home, and building memories through incredible experiences. On top of that, retirement money can be somewhat difficult to tap early. As a result, overloading your retirement plan to the detriment of the rest of your finances could put you in the position of having money but not being able to touch it.

Ideally, you'd like to wind up with exactly what you need, exactly when you need it. Of course, none of us can predict the future well enough to build a financial plan that's guaranteed to get us perfectly there. Still, as years of contributions and compounding help your 401(k) and IRA account balances grow, your money can reach the point where it's ready for your retirement well before you are.

What to do if you get there early?
If you've reached the point where you've got enough socked away in your retirement accounts before you need that money, you can stop contributing to them (although I'd strongly encourage you to at least make sure you still keep getting an employer match in your 401(k) -- that's free money right there). If you do stop contributing new money, it's also a good idea to look at how your money is invested and consider ways to include capital preservation in your overall strategy. After all, the market will continue to move both up and down, and if you have what you need, why risk more than you need to in order to keep it?

That doesn't mean you should instantly shift to a retiree-appropriate portfolio, unless you've also decided that since you have enough saved up, you're done working. It does mean that you can do things like buy the long-term end of a bond ladder set to start maturing when you do expect to retire. For instance, if you want to retire in eight years, buy enough quality bonds with eight years to maturity so that when they do mature, the maturing bonds will cover your first year's expected costs of living.

Then next year, those bonds will have seven years of life left, and you can consider buying another eight-year set of bonds, set to mature and hand you spending cash a year after the first group. Keep that up, and by the time you're ready to retire, you'll have a full bond ladder. By starting to convert your money in this way, you get key benefits like:

  • Longer term, typically higher interest rates on each level of your bond ladder¬†in retirement
  • Some of your money converted to the lower-risk world of bonds, while the rest can continue the faster potential compounding in stocks
  • A plan to better assure you'll have the spending money you need, when you need it

And if you're not there yet...
Of course, if like most of us, you haven't reached the point where you've got enough to retire comfortably, then building your nest egg remains a more urgent goal than preserving it. No matter what your age, as long as you're still drawing a paycheck, you can take steps to help assure yourself a better retirement.

If your nest egg isn't yet sufficient, then by all means -- keep funding it. The more consistently you save, and the longer you keep at it, the better-stocked your retirement portfolio will be. As your nest egg grows from compounding and continued contributions, it too could someday reach the point where you've got enough to cover your needs in retirement, perhaps even before you need it.

When that happens, then you too can enjoy the incredible sense of freedom that comes when your 401(k) and IRA finally have "enough." When that day comes, work becomes a choice, rather than a chore, and that can change your entire outlook on work.