3 Signs You Should Save Less for Retirement

“Save for retirement” is one of the most common pieces of financial advice. And generally, it’s good advice; the sooner you start saving, the longer that money can grow for you. But it’s not always the best advice for every situation. Depending on your circumstances, you may be better off reducing your retirement contributions or pausing entirely for some time.

You’re regularly coming up short on your bills

If you have trouble making ends meet, that’s a sign you should pause your retirement contributions. Paying your bills on time should be the top priority and pausing your retirement contribution will give you more money back in your paycheck to help with that. The intention behind contributing to retirement is good: you are trying to financially prepare so that your future self can pay their bills, but you have to give your current self the same courtesy. 

You have credit card debt

One of the major benefits of saving for retirement is the compounding growth of your invested money. With a 7% annual return, you can expect your balance to double about every ten years, even if you don’t contribute anything to it during that time. That’s powerful, isn’t it? Unfortunately, the same compounding that works in favor of your retirement savings is working against your effort to pay off debt. Historically, the stock market has gained an average of 7% annually, but the average credit card interest rate is 24.56%. This means that if you save $1,000 for retirement, you could expect to have an additional $70 on average one year later. If you paid that $1,000 towards debt instead, you’d save $245 in interest on average. 

One major exception is that you should still contribute enough to get your employer match because that is a 100% return on those funds.

You don’t have any savings

Without cash savings, an emergency expense will likely end up on your credit card which puts you in the same situation as above. For this reason, you should contribute only enough to retirement to get any match offered by your employer until you’ve built up enough of an emergency fund to cover surprise expenses that you might otherwise need to use a credit card for. Also, a PSA: your 401(k) does not make a good emergency fund. After you pay taxes and the 10% early withdrawal penalty, you may only end up with about 60% of the amount you withdrew. This means that you have to withdraw nearly twice the amount you need to cover the expense. 

Final Thoughts

Saving for retirement is important and it’s something we all need to do at some point but skipping building your financial foundation may delay your progress toward your goals. 

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