Comments on: Five Reasons to Stop Contributing Toward Retirement

By: Joy

Joy — Thu, 04 Feb 2010 19:39:51 +0000

Enjoyed the article … just wanted to let you know that I’m sharing the link to it on today’s “This ‘n That Thursday” post on my blog.
http://myreasonstoblog.blogspot.com/
Hope you’re having a great day!!!
~ Joy

By: FinancialBondage

FinancialBondage — Sat, 30 Jan 2010 17:39:20 +0000

this post title caught my eye. The bible says we are to plan and save for the future… So if you do stop to pay off debt, or whatever, My thoughts would be to start again as soon as you can. Don’t think that social security will be around in your golden years… technically it’s already broke and full of IOUs (There is money in it, Just IOUs.)

By: joseph

joseph — Tue, 26 Jan 2010 00:56:05 +0000

Great article, i really like the fact that you stated obedience to God’s leading as more important than obeying financiall advisor Amen to this. @jason, yes striking the balance is Key.

By: Jason @ One Money Design

Jason @ One Money Design — Sat, 23 Jan 2010 02:21:06 +0000

Craig, good post to ponder. Personally, I think the key is balance and I’m glad Larry brought up Dave Ramsey’s Baby Steps. I do believe in establishing a $1000 emergency savings, getting debt paid off and then a fully funded emergency savings fund as top priorities. And, let’s not forget giving. It’s important to take advantage of employer matching at a minimum, but I think it only makes sense if you can still give and make forward progress in these other areas. And yes, if you can’t make progress rather soon, such as in a few years or less, you may need to look at other options such as downsizing to get to the point of investing for retirement sooner.

By: Craig

Craig — Fri, 22 Jan 2010 20:50:05 +0000

@Jason – if one could cut back that would be the best option. I actually cut back my retirement this year, but felt like I wanted to go further. Right now I’d rather purse a dream and take a year or two off – if necessary.
@Craig your mum did a good job naming you! Yes, if you can cut back and avoid stopping that makes sense.
@Larry – those guidelines sound right to me. Two thumbs up!
@pochax – you’re right I didn’t spell out all the consequences of not contributing to retirement. I felt like adding that section would add too much content to the post. I figured there were a lot of other posts on the web that did just that. Yes, you provide some very, very good reasons not to stop contributing to retirement. Thanks for adding that information.
@D – good points. I like how your comment explores the tension here. As I read you post I thought – exactly. This is basically a topic where there will always be “on the one hand” and “on the other hand” points.
@Joe (and Pochax) thanks for mentioning the employer match. I’ve never had a job where I’ve had an employer match so I wasn’t on my radar when I wrote this post. However, all the valid reasons are still valid even considering the match. It might, however, mean you need a stronger motivating factor to cause you to stop.

By: Craig

Craig — Fri, 22 Jan 2010 20:37:08 +0000

Hey all,
Thanks everyone for the great feedback.
I thought I’d give a little more detail here. There seems to be a hesitancy to give full endorsement to this post (and that is OK). If I wanted to I could have wrote about the 5,673 reasons to contribute to retirment NOW. But, that would be old and boring. Besides I’m considering one of these options and I wanted to decide there were any valid reasons.
One thing I should have clarified in the post is that these are 5 reasons to *temporarily* stop contributing to retirement. I’d put a cap somewhere between 1-3 years. If you can’t accomplish your goals within that time period there could be irreprible damage done (but, perhaps not, depending on your situation).
The decision MUST be made carefully. It MUST also be a decision made based on your personal situation.
I’m continually amazed at how often people think the most profitable decision is the right decision. I don’t think that is always true.

By: JoeTaxpayer

JoeTaxpayer — Fri, 22 Jan 2010 19:44:06 +0000

Walking away from the matched money is nearly always a mistake.
Other than that, I’d absolutely tell people to pay off any CC debt first, even 12% debt.
I understand the choice between paying off the 5-6% mortgage vs putting that money toward retirement. This is a personal choice and can go either way.
For some, the thought that this money costs 3% (say) after tax, and in a long time period, the S&P is likely to beat that number is reason enough.
For others, the comfort and biblical motivation to be debt free sway them the other way.
From here and other PF blogs, I now know to ask “How does this debt make you feel?” One can’t put a dollar figure on the weight on one’s shoulders that comes with debt. I get that now.

By: D

Fri, 22 Jan 2010 19:16:58 +0000

I agree that if you’re paying 19% interest on your credit cards and you have a substantial amount of debt, it may make sense to focus on paying off this debt before contributing to your retirement accounts. Even if your 401k was returning, say 15% a year for instance, you’d still be losing out 4% on a purely percentage basis.

On the other hand, pochax makes a few good points that if you stop contributing completely, you may miss out on possible company matches, and the extra time for your assets to compound and rebound from losses. And you also lower your taxable income when you contribute as well.

I guess it depends on how much debt you actually have. Maybe there could be a balance between contributing just enough to get the company match, and then using the rest of the money that you would’ve contributed to paying off the debt. I would also have a hard time justifying my savings rate to zero.

A finance professor of mine once said something to the effect of: “You can borrow money for many things, but it’s hard to borrow money for retirement.”

Of course, with that said, if you have a dream that you’d like to pursue other than a wonderful retirement, and would like to fulfill that dream within a shorter deadline than your retirement age, than I could justify holding back a little bit on contributing to your 401k. If you have enough savings to cover at least 6 months of expenses, then I would feel okay about pursuing that dream.

I guess it all depends on your goals, priorities, and what you actually want to do in your retirement years.

By: pochax

pochax — Fri, 22 Jan 2010 17:48:55 +0000

your points are well-taken although i am not sure you have spelled out all the consequences of NOT saving early for retirement such as:
1) lost matching contributions (if available) from employer. You are leaving free money on the table which is a guaranteed 50-100% return on your contributions depending on the level of match.
2) compounding effect of gains over time lost. personally i wish i had started investing in my 20s as i am now in my late 30s and just got on track a couple years ago. i have a LOT of time to make up which will require me to save more to reach my retirement goals.

having said that, i agree it is not a black-n-white decision, but it needs to be made clear that you cannot make up for lost time easily and the consequences can amount to tens-to-hundreds of thousands of dollars lost.

By: Larry Jones

Larry Jones — Fri, 22 Jan 2010 17:22:23 +0000

While I agree with most everything you write in this post, I think Dave Ramsey probably gives the most balanced approach: stop retirement to get out of debt and get the 3-6 months expenses saved for an emergency fund. Then get the retirement accounts fully funded before saving for other needs or paying off the house early. Time is of the essence in getting maximum returns on your retirement investments. The longer your contributing to them, the more shares and hopefully more money you will have come retirement age.