Keeping Up with Contributions

keeping up with contributions

Why you should avoid decreasing 401(k) contributions.

Regularly contributing to a 401(k) is a great way to ensure you have a solid retirement nest egg. However, it can be hard to keep your focus on the future, especially if you are struggling in the present. If you are struggling, you might be considering reducing your 401(k) contributions. That’s usually not a good idea.

Basics Expenses Covered

The only reason you should even think of reducing 401(k) contributions is if you’re not keeping up with basic expenses, like rent and car payments. You could temporarily reduce your contributions and then re-up them when you get past your financial speed bump. If you are not struggling to pay bills and just want to have extra spending cash, we recommend you think twice before reducing your contributions. 

Going Through the Numbers

It might seem like reducing your contributions by a little isn’t a big deal, but it adds up.

  • Scenario A – Let’s say you’re 35 and contributing $500 per month to your 401(k). You decide you want to reduce it and start only contributing $400 per month. When you reach 67 years old, you’ll have saved about $741,000 for retirement.
  • Scenario B – If you keep contributing $500 per month, you’d have about $878,000. That’s a huge difference in savings.

You’re going to want as much savings as possible during your golden years, especially when you consider inflation and rising healthcare costs. In one recent report, a 65-year-old retiree can expect to spend about $157,500 or more on medical expenses during retirement. 

Do One Thing: Maintain your 401(k) contributions. If anything, look to increase them, but refrain from decreasing them. 

Chris O'Shea

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