If you're actively investing for your retirement, one of the most important dates in your plan is the day you can stop socking new money away to fund it. Once your retirement plan is adequately funded, there's no need to continue diverting your income to it. At that point, you can either cut back your hours or boost your lifestyle and simply let compounding work its wonders.

When can you stop saving?
That magic date depends on several factors. Key ones include:

  • What your ultimate target nest egg is.
  • How much you have socked away already.
  • What rate of return you can expect.
  • How long it is until you plan to retire.
  • How bad inflation will be between now and your retirement.

Once you have an idea how those factors affect your personal situation, it's fairly straightforward to figure out whether you've got enough to stop making new contributions. For instance, assume you'd like to retire on a cool $1 million of today's dollars and you think inflation will average around 3% annually between now and retirement. This chart shows you how much you need to have today, based on potential expected returns and time to retirement, to hit that target:

Years to Go

4% Returns

6% Returns

8% Returns

10% Returns









































Unfortunately, it's not just a matter of hitting your target and then simply stopping. As the past few years remind us, stocks don't move up in a straight line. Indeed, they don't always move up at all. As you get closer to what the calendar calls your retirement date, you may want to shift your allocation more toward bonds. While that should reduce your volatility, it does also move you closer to the left hand side of that chart in terms of total long run potential returns.

What's the right balance?
Of course, the obvious problem with that chart is the decades of difference in the amount of time between the same dollar amounts on its left side and its right side. Ultimately, that means you'll likely have to keep your allocation on the more stock-heavy side of the chart, at least until your balance reaches the point where you can shift things around.

That does mean you might face the prospect of having to work a few more years to reach your goal, especially if the market moves against you late in your career. But when you compare that against the few extra decades you'd have to invest via a more conservative strategy from day one, you may find the trade off to be worth your while.

Mitigate your risk
That being said, investing in a broad fund -- one that tracks an overall market index (like the S&P 500), for instance -- can help protect you from the worst risks of stock investing. By getting you instant access to a large number companies across a broad swath of industries, investing in an index can protect you from problems facing any one company or industry.

For instance, the companies in the table below are all profitable businesses that help make up the S&P 500. Yet if you take a look at how their stocks have performed over the past decade, you can easily see that they've been all over the map:


Market Cap
(in millions)

Trailing Earnings
(in millions)



ExxonMobil (NYSE: XOM)



Major Integrated Oil & Gas


Microsoft (Nasdaq: MSFT)



Application Software


General Electric (NYSE: GE)





Wells Fargo (NYSE: WFC)



Money Center Banks





Telecom Services-Domestic


Pfizer (NYSE: PFE)



Drug Manufacturers-Major


Coca-Cola (NYSE: KO)



Beverages-Soft Drinks


Data from Yahoo! Finance; returns calculated by comparing adjusted closing prices 3/26/00 to 3/26/2010.

The lesson from the table is that a broad index can protect you against being on the wrong end of an improperly allocated portfolio.

Even Warren Buffett -- one of the richest people on the planet, as well as arguably the world's greatest investor -- has admitting making investing mistakes in his life. One of his most prominent, for instance, was in not selling Coca-Cola when its shares were richly valued in the 1990s. Yet Buffett got rich by buying and owning stock in great companies. Not every investment worked out to his expectations, but as a whole and over time, they did.

Unless you've got Buffett-like levels of capital and time at your disposal, however, it's nearly a herculean effort to build a strong, diversified portfolio stock-by-stock-by-stock. But with a good index fund as your base, you can get both that diversification and the benefits of stock ownership without the hassle and risks of owning individual companies.

Begin with the end in mind
Once you understand the impact that your potential return rate has on how much money you have to accumulate to retire, the benefits of remaining invested in stocks become apparent. Dealing with the volatility that brings can be the difference between retiring within five years of your target or 25 years. At Motley Fool Rule Your Retirement, we can help you plan for the tradeoffs between time, money, and volatility that are an inevitable part of retirement investing.

If you're ready to design the path to get you from here to your successful retirement, then join us today. To see the tools, techniques, and team we provide to our members, click here to start your 30-day free trial. There's no obligation.

At the time of publication, Fool contributor Chuck Saletta owned shares of Microsoft and General Electric. Coca-Cola, Microsoft, and Pfizer are Motley Fool Inside Value picks. Coca-Cola is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool has a disclosure policy.