According to a recent study by Gallup, 64 percent of Americans say they are worried about having enough money for retirement. That makes retirement the country’s number one concern for the 16th consecutive year. In fact, retirement has been the top financial concern for Americans every year since Gallup started conducting the study.1
There’s good reason for Americans to be concerned. With the disappearance of company pensions and the uncertain future of Social Security, it’s clear that the next generation of retirees will carry more of the retirement funding burden than any previous generation. It’s primarily your responsibility to save money for retirement, as you may not be able to count on a pension or a full Social Security benefit as a safety net.
As important as it is to save for retirement, however, there may be times when it may not be wise to make retirement your top financial priority. Many people assume that retirement should always top the list of savings goals. Depending on your circumstances, though, that assumption could be incorrect.
Below are three instances when it could be advisable to cut back on your retirement contributions. That doesn’t mean eliminating retirement savings altogether. Rather, it means cutting back so you can find a balance between retirement and other financial goals. If any of the below sound familiar, it might be time to reassess your planning.
You don’t have any emergency savings.
It’s always wise to have a large nest egg when you enter retirement. However, what would happen if you face an unexpected financial emergency today? Do you have a reserve of funds you can tap into?
If not, you may want to shift your focus to building such a reserve. You may have a medical emergency or you could face an unanticipated job loss. The fallout from that event could put you in a challenging financial situation, which may force you to take on debt and even drain your retirement assets.
You can minimize that risk by building up a reserve that can cover several months of expenses. Consider cutting back on retirement contributions so you can shift funds towards building up that reserve account.
You and your family are vulnerable to risk.
Having an emergency reserve is just one way to minimize risk. Another is to have protection tools in place, such as various types of insurance. If you don’t have appropriate levels of coverage, you may need to address those needs before maxing out your retirement contributions.
For example, consider what might happen if you were to unexpectedly pass away. How would that impact your family? Would they be able to pay their bills? Could they stay in the family home? Would your spouse ever be able to retire?
The same questions also apply to disability. What if you were physically unable to work? How would your family fund their expenses? How would they pay for your care?
The good news is that both of these risks can be easily managed through insurance. Life insurance provides your family with a tax-free death benefit in the event of your death. Disability insurance offers a stream of income to offset lost wages due to your inability to work. If you don’t have these protections in place, you may want to consider them.
You have high-interest debt.
High-interest debt can have a long-term corrosive impact on your finances. It’s a drain on your cash flow, and it may impact your credit, limiting your ability to borrow in the future. While saving for retirement is always important, you should make it a priority to eliminate this debt as quickly as possible.
You can start by calling your creditors and asking to negotiate an arrangement. Many credit card companies will lower your interest rate if you commit to a repayment plan and agree to discontinue use of the card. Then consider cutting back on retirement contributions and allocating those funds toward an aggressive plan to pay down the debt.
Not sure how much you should be contributing towards your retirement? Contact us today at Thomas Financial Corporation. We’re happy to sit down with you, analyze your needs, and develop a strategy. Let’s connect today and start the conversation.
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