4 Legitimate Reasons To Put Saving for Retirement On Hold

Specific circumstances justify a temporary or permanent pause on retirement saving. We explore four good reasons to stop saving for retirement.

This introduction may run contrary to the title of this post, but I cannot overemphasize the importance of saving for retirement. If you are saving now, consider saving more. If you haven’t started yet, you’d better get going.

You can’t start too early, and for the most part, you can’t save too much. You may, however, be in a specific financial circumstance that justifies temporarily or permanently ceasing your retirement contributions.

If you’re in one of these four situations, giving your retirement account a break may make sense.

1. If You Are Establishing an Emergency Fund

You’ll find varying advice on exactly how much you should have in your emergency fund, but everyone agrees that you need one. If you don’t have one, you should probably suspend your retirement savings plan and establish an emergency fund.

How much you save is really up to you. Most experts suggest an amount between three and six months’ worth of living expenses. I would suggest setting an amount that you feel comfortable with.

No one can predict when a medical emergency will arise, when a car will break down, or when a natural disaster will hit. That’s just the beginning of the list of things that could happen, and you need to have some money available to deal with these problems.

If you’re building a retirement nest egg, but nothing in reserve, you may have to pull from these retirement accounts to pay for your life emergency. Having to do this will cost you big time in the way of retirement account early withdrawal penalties and other tax considerations. (See 7 Penalty-Free Ways To Withdraw Money From Your Retirement Account.)

Worse, if you don’t have an emergency fund, you could end up with the worst of all situations, which is relying on credit to deal with a problem.

Make sure that your emergency fund is in some sort of interest-bearing account. Obviously, it needs to be somewhere that you can access instantly if you need it, but don’t think that just because it is an emergency fund, it needs to be in some generic type of account. A high-yield savings account is an ideal option for most people.

2. If You Are Paying Off Debt

If you have already learned the hard way that not having an emergency fund can lead to heavy credit card debt, or if you’re just carrying a high balance on your card, then it’s time to rethink your retirement saving strategy. In fact, almost any high-interest debt, like a personal loan, may need more attention than your retirement accounts do.

Consider this simple example: If you are contributing to a 401k plan that yields roughly an 8% return, but you are currently paying 20% interest on a credit card balance, what’s the sense in that? Suspend your 401k contributions until your credit card debt is entirely paid off, and then resume your retirement savings.

Do not make the mistake, however, of suspending retirement contributions in the name of getting ahead of your student loan debt. Though you may feel like your student loans are always looming over you, they’re among the few low-interest debts you can carry.

If you’re only paying 3% or 4% on your student loans, resist the urge to make the whole thing go away, even if you have some extra cash on hand. Just grin and bear the burden and use the extra cash to contribute toward that retirement account with compounding interest. You’ll be more pleased with the results in the long run.

Related: Should I Stop Contributing to My 401k So I Can Pay Off Debt?

3. If You Are Buying a House

The housing market may be heading for trouble again, but now is still a great time to buy a home. Few financial moves are more important than putting down as much as you can afford for your down payment. The more you put down, the less you’ll owe in interest over the life of your mortgage, and you can save thousands of dollars by committing just a little bit more upfront.

If you are trying to save for a home purchase, consider shifting some of your regular retirement contributions so you can devote more funds to a down payment.

Keep in mind that once you have paid off 20% of the value of the home, the need for private mortgage insurance goes away. That additional incentive can help you figure out just how much you want to have available for your down payment.

4. If You Are Managing Your Contribution Limits

This last point is not a reason to stop investing for retirement, but rather, it’s advice on what to do if you can no longer invest in your retirement in a particular tax year. You are subject to certain investing limits when it comes to funding retirement accounts. If you reach these limits early in this tax year, don’t stop saving. Shift your money into other investment vehicles (like stocks, bonds, or money market funds), or consider funneling this money into paying down your mortgage.

Your maximum annual 401k contribution limits for employer-based plans (and for a 403b, too) in 2023 is at $22,500 if you’re under 50, and $30,000 if you’re 50 or older. Contribution limits for 2024 are $23,500 and $30,500 respectively. If you’ve maxed out these investment limits, first of all, congratulations! You are well on your way to an enjoyable retirement.

If you have this much early momentum in your savings habits, don’t slow down. Just change the final destination of the money you’re putting away.

Related: A Guide to 401k Contribution Basics

Final Thoughts

Everyone should be investing for retirement. If you haven’t started, or if you’re in the middle of a “break,” you should start or get back to saving. If you’re in the middle of saving, consider the volatile state of social security and decide if you’d be comfortable contributing even more.

By the time you reach your golden years, you could very well be entirely on your own. But don’t let the importance of retirement planning cloud your judgment during some key situations. Sometimes, retirement saving isn’t the most responsible move available, and it’s okay to put your savings on hold.

• A Time To Prioritize Savings Over Debt Repayment
• Before Making a Withdrawal From Your 401k To Pay Off Debts
• Retirement Savings or Debt Reduction?

Reviewed December 2023

About the Author

David Bakke writes about retirement planning, investing, and frugal living on one of the top personal finance blogs, Money Crashers.