The Only Time You Should Stop Contributing to Your 401(k)

From student loans, to medical bills, to simply putting food on the table, so much of managing your finances can feel like it comes down to getting by day-to-day. Retirement, meanwhile, feels like a distant dream. How can you even think about maxing out your 401(k) or Roth IRA when you can barely afford rent?

However, the best thing you can do for your retirement funds is always to start saving now. Even if you think there’s no need to start worrying about it yet, any savings at all—even if you don’t add to your nest egg for years—can go a long way. So how do you navigate saving for retirement when it feels like your lowest priority? Here’s what you need to know about when it may temporarily make sense to pause contributions to your retirement funds, and how you can still stay on track for retirement.

How to know when you can’t afford to contribute to your retirement

First off, “take a long, hard look at this decision before you make it,” says Nathaniel Donohue, financial planner and partner at Consilio Wealth Advisors. From a lifestyle perspective, it’s all too easy to pause contributions longer than is absolutely necessary. “Your level of consumption will always rise to the level of resources available,” Donohue explains, meaning that even if you only plant to pause contributions to pay down some bills, “something else will eat up those funds.” It’s human nature.

While pausing contributions to a retirement account is not ideal, life happens. Extreme or unexpected financial situations might have to take precedent over investing in your future. For example, if you have a lot of high-interest credit card debt and you’ve just been laid off from your job, it may be a good idea to pause contributions and reroute that money toward paying off your debt first. More specifically, Donohue says that if you have high interest debt at 8% or more, paying that off should take priority over contributing to retirement.

So when you’re facing significant debt or reduced income, it’s reasonable to consider temporarily lowering or pausing contributions. However, this should come as a last resort, and only after looking for other ways to reduce your expenses. Donohue suggests a number of tips to save: online budgeting tools, the “envelope method,” and conducting a monthly personal finance meeting can all be a good start.

And when it comes to that monthly finance meeting (which Donohue swears by), focus your attention on creating realistic, attainable financial goals. Setting aside a few hundred in student loans per month is going to be easier to face than contemplating paying off thousands in debt. “Small steps compound to huge results over time,” Donohue says.

What happens when you pause contributions to your retirement accounts

Naturally, pausing contributions to your retirement accounts will delay your progress toward building a the sort of nest egg needed for retirement. When you’re pausing contributions to your retirement account, you unfortunately expose yourself to various risks, both short-term and long-term. For example, if you have a 401(k) retirement account with employer matching and you pause contributions, you might lose that “free” money. After all, if you’re not able to contribute, your employer cannot match it.

The real danger of deciding to pause contributions is how easy it is to leave them paused. For a lot of us, retirement seems far away and not worth worrying about—especially if you’re in dire straits right now. This is also why if you’ve been waiting to invest in your retirement until you check off other financial goals (like paying off your students loans), you’ve been denying yourself the major advantages retirement accounts offer.

Of course, it’s never worth going into massive debt in the present. If stopping retirement contributions for a few months is going to be your life preserver, then by all means, use that life preserver—but make good use of that time to pay down your debts and unpause your contributions as soon as possible.

How to stay on track for retirement when you have to pause contributions

If you’re in a situation where you feel that you have no choice but to stop contributing to your retirement account, have a plan for when you’ll resume investing. “Your goal is to eliminate debt so that you can get back to paying yourself before you’re paying the bank,” Donohue says.

While you’re mapping out your plan, think about when you’ll resume and how you’ll make up for the missed contributions. Consider factors such as your age and how much time you have left until retirement, whether you have any debt or pressing expenses, your income and job security, and the investment market conditions.

The key is being strategic about when to pause, with a plan to restart contributions once the situation improves. The earlier you can start saving for retirement, the more your money benefits from compound growth over time. (For more, here’s how to feel less terrified about retirement.)

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