The standard saving and retirement advice is to save money until you are ready to retire. Then retire and start living off your savings.
But is this really the best solution?
If you one and only goal is to retire as fast as possible, yes, this is the best solution. But what if you have other goals in life?
This started when Louise and I had a conversation about how much we wanted to spend on vacation during retirement. One idea I had, was that the very last year before we retired, we stop saving money, and use that for vacations. The question was "how much of a difference will that make to our retirement?"
The short answer? Almost nothing. Skip to the End and just read the spreadsheet here.
Why? The amount you save each year is equal to the new money you put in, plus the interest on your savings. As your savings increase, so does the interest. Sooner or later, the contribution from the interest overshadows the amount you contribute.
For Example. Assume you make $100 a year, you save 10%, and you get 8% average return. At the end of 10 years you would have