Expert Reveals the Worst Time To Stop Funding Your Retirement Accounts
Written by
Angela Mae
Edited by
Amen Oyiboke
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There are plenty of times when you might no longer want to fund your retirement accounts. You could be in between jobs or saving up for a down payment for a house. Or you could have already reached your savings goals and no longer see a point in continually maxing out your contributions.
While there are times when no longer funding your accounts makes sense, there are also times when it doesn’t.
These are the worst times to stop putting money into your retirement accounts, and how it can affect your finances in the long term.
Don’t Stop During a Market Downturn
The worst time to stop funding your retirement accounts is during a major market downturn or recession, according to Chad D. Cummings, CPA and CEO at Cummings & Cummings Law.
“Stopping retirement contributions during a market downturn locks in long-term losses and undermines compounding,” he said. It also causes you to lose the opportunity to buy low and watch those same assets appreciate during the next market cycle.
Historically, the S&P 500 has seen an average annual return of 6.69% (adjusted for inflation). But even when it’s experienced a downturn, it’s always rebounded eventually.
For example, the market fell 54% in February 2009 but recovered by May 2013. It also fell 28.5% in September 2022, but bounced back by March 2024.
If you only invest when prices are on the rise, your overall returns will be lower. And as Cummings pointed out, if you panic sell during a downturn, you’re essentially locking in your losses — and won’t be able to capitalize on higher returns once the market bounces back.
You might not realize how significant these losses are until you’re closer to retirement. But by then, there’s no going back on your decision.
Don’t Stop While You’re Young
The earlier you start — and the longer you keep contributing — the more your money can grow through the power of compounding. Stopping too early can dramatically shrink your final balance.
For example, say you start contributing $7,000 a year to a traditional IRA at age 30 with a 7% annual return. By age 65, you could have around $967,658 before taxes. But if you stop contributing at age 55, your balance would only grow to about $442,743 — less than half the amount.
As Cummings noted, “The more time you have on your side, the more your investments can benefit from compounding.”
Be Aware of Tax Liabilities
Not all retirement accounts are created equal — especially when it comes to taxes. Choosing when and how to contribute should depend on your current tax situation and future plans.
“For many people in their peak earning years who are edging into higher tax brackets, contributions to traditional 401(k)s and IRAs can make a lot of sense,” said Aaron Brask, financial planner at Aaron Brask Capital. “Those contributions are deductible and can help rescue earnings from being taxed at one’s marginal tax rate.”
However, Cummings cautioned that continuing to fund pretax accounts later in life — especially when you’re eligible for required minimum distributions (RMDs) or Social Security — could increase your taxable income. That might even trigger IRMAA surcharges for Medicare, which are based on your income level.
If you’re in that stage of life, it may make sense to shift your strategy, such as converting some funds to a Roth IRA, which allows for tax-free withdrawals in retirement. Before making major changes, consult a tax or retirement planning professional to ensure your approach aligns with both your income and long-term goals.
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