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Should You Always Max Out Your Retirement Contributions?

Filed under: Retirement

Commonly accepted financial wisdom is that you should always contribute as much money as possible to your retirement accounts, such as your 401(k) plan or your IRA. Is this really true, though?

Perhaps not. There’s no doubt that retirement presents a major financial challenge. With the availability of pensions on the decline and the future of Social Security uncertain, it’s become more important than ever for workers to save money for retirement. Chances are good that future retirees will shoulder more of the financial burden for retirement than any previous generation.

Generally speaking, it’s wise to contribute as much as possible toward your retirement savings goal. The more you can save and the earlier you can start, the easier the path will likely be to reach your goal.

However, there are a few situations in which it may not make sense to max out your retirement savings contributions. After all, various financial goals and challenges are likely to arise during your career. Saving for retirement is just one piece of the puzzle.

Below are three questions to ask yourself. If you answer yes to any of these questions, it may not be in your best interest to allocate all of your savings to retirement. That doesn’t mean you should eliminate retirement contributions altogether. Rather, work to find a balance between retirement savings and other financial goals.


Do you struggle to pay your bills?

It’s important to save for retirement. However, retirement savings shouldn’t come at the expense of current obligations. If you struggle to pay your bills or pay for basic needs, you may want to cut back on retirement savings to get your current financial situation in order.

The other side of this coin, though, is that you may be living too extravagant of a lifestyle today. Create a budget and try to review your spending objectively to find areas in which you can cut back. You may find that you can save more if you live a more modest lifestyle.

If you truly do need to cut back on savings, try to at least contribute enough to your 401(k) to get your full employer match. The employer contribution is essentially free money, and it can help you maintain a strong total contribution rate even if you are personally contributing only a modest amount.


Do you have high-interest debt?

High-interest debt can have a corrosive long-term impact on one’s financial stability and savings capacity. Money that you’re using to pay interest on that debt could be better used to save for retirement and other goals.

Also, keep in mind that if you have high-interest credit card debt, you will likely pay a higher rate of interest than you would earn as a return on your investments. Consider cutting back on your retirement contributions and using those funds to pay down your cards or other debt as quickly as possible.

Again, this doesn’t mean cutting back completely on savings. Create a debt repayment plan so you can balance retirement savings with debt repayment. When you eliminate your debt, you can then increase your savings rate.


Do you have exposure to substantial risk?

Planning for retirement isn’t just about saving money. It’s also about minimizing risk. If you suffer a long-term disability or lose your job, you may face financial challenges that could threaten your retirement. If you’re the breadwinner for your family, your death could threaten your spouse’s ability to retire.

Examine your complete financial picture and determine your exposure to risk. The financial challenges associated with disability and death can be managed with insurance. You can protect yourself in the event of a job loss by building up a sizable emergency savings reserve. If you don’t have these kinds of protections in place, you may need to cut back on retirement savings temporarily so you can limit your vulnerability.

Not sure if you’re contributing the appropriate amount to retirement? Contact us at Ambrose Financial & Insurance Services. We can help you analyze your goals and needs and determine the appropriate strategy. Let’s connect soon and start the conversation.


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This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

16112 – 2016/9/20