Before You Stop Saving for Retirement, Check Out These Tips
With inflation rates regularly hitting 40-year monthly highs in 2022, many Americans were forced to cut spending and look for ways to save money. Taking a particularly big hit was retirement savings. According to a new Retirement Inflation Survey by U.S. News & World Report, 50% of Americans paused their retirement savings plans at some point last year.
See the List: GOBankingRates’ Best Banks of 2023
Learn: Make 3 Retirement Moves Amid Looming Recession
Find: Over Half of Adults ‘Jeopardizing’ Retirement With Poor Knowledge
The same study found that 41% of respondents stopped paying money into a retirement fund and 32% had to use some of their retirement savings just to stay afloat. Cutting back on retirement contributions is understandable in periods of high inflation — especially if you need the money to pay for essentials such as housing, utility bills, and groceries. However, doing so comes with serious consequences.
“Yes, it’s OK to lower your contributions if you are broke,” Danielle Miura, a certified financial planner based in California, told CNBC. “However, you may push back your retirement date by doing so.”
Cutting back on your 401(k) contributions means sacrificing compound interest that can help push your retirement savings higher, Miura said. This means you’ll need to save even more money later in life to make up for it.
The worst move you can make is to stop saving for retirement altogether. Rather than do that, consider these options:
Change Your Budget
Rather than stop putting money into retirement savings, figure out ways to whittle your budget in other areas. You’d be surprised how many discretionary expenses can be reduced or eliminated altogether.
These can range from making your own coffee instead of spending $5 every morning to cutting back on restaurant visits, pricey vacations and expensive gym memberships.
Take Our Poll: How Do You Think the Economy Will Perform in 2023?
Reduce Your Debt Interest
High-interest credit card debt can quickly eat into your budget — especially if you make a lot of purchases with your card and then pay at or near the minimum every month. The best move is to cut down on your credit card use. After that, try to pay the balance in full every month to avoid interest charges.
Finally, if you have a lot of credit card debt with high interest rates, consider transferring the balance to a credit card that offers a 0% introductory annual percentage rate. Maybe by the time the interest kicks in, consumer prices will have fallen back to more normal levels.
Get a Side Gig To Earn Extra Money
This doesn’t mean setting up a lemonade stand or holding a yard sale to rake in a few extra dollars a week. Some side gigs can let you earn as much as $1,000 a month.
Examples include working as a consultant in your field of expertise, being a rideshare driver, teaching English online, mowing lawns and even serving as a wedding officiant.
Reduce Instead of Eliminate Retirement Savings
If you have to cut back on your retirement savings, at least try to contribute enough to your 401(k) so it doesn’t go below the amount needed for an employer match. The only exception would be if you credit card debt becomes unmanageable.
“[In that case] give up the match for now and look for opportunities to resume that saving in the future,” Florida-based CFP Joey Loss told CNBC.
Beyond that, try to keep your retirement savings reduction as small as possible and then reevaluate your contribution in three months, said Preston P. Forman, a CFP with Seasons of Advice Wealth Management in New York.
Retirees: Make Your Possessions Last Longer To Save Money
Explore: More State-Run Retirement Programs on Tap for Those Without 401(k) Plans
“By then often the storm has passed, and it’s a lot easier to increase a contribution from 10-to-12 percent than from 0-to-12 percent,” Forman told The Street. “The funny thing is that many clients who were going to cut their contributions never get around to doing it. And that’s a good thing, ultimately.”
David Nadelle contributed to the reporting for this article.
More From GOBankingRates