Top of Mind

When Saving for Retirement MIGHT Not Make Sense

It makes a ton of objective sense in most cases to voluntarily save to a retirement plan particularly if you are young (due to the tremendous power of compounding) and your company makes an employer matching contribution. Not taking advantage of a company match at the very least, you will be missing out on essentially free money.

However; there are some scenarios where saving for retirement MIGHT may not always be the best option. I say “might” since there are a lot of variables involved (income, current account balance, debt level, age. etc.) so it is extremely difficult to generalize in this area. But such scenarios, do exist, imo. Some possible circumstances under which saving to a retirement plan might be less of a priority are as follows:

  1. If you have already met your retirement goals but have not yet funded a Health Savings Account; it may make sense to redirect funds into an HSA account. —Once your retirement account balance exceeds $500,000, even maxing out will result in asset growth of less than 5%; and at $1 million, it is less than 2.5%. As a result, investment return becomes far more critical than contributions at this stage in terms of future retirement wealth accumulation - unlike when you were younger where contributions were critical. Since HSA are triple-tax-free when used for medical expenses in retirement, and are taxed just like a retirement plan if used for ordinary expenses at age 65 or older, directing dollars to your HSA account or ideally saving to both a retirement plan and an HSA if you can afford to, may make more sense at some stages later in life.
  2. If you (including your spouse and any other dependents) don’t earn a lot of money and have no reasonable expectation of earning a lot of money prior to retirement—Social Security (assuming that you complete the necessary amount of W-2 employment necessary to receive the full Social Security benefit) is going to replace a substantial amount of your preretirement income, mitigating the need for retirement savings. The flip side of this scenario is that, if you can afford to save, particularly if you are younger, such savings will greatly enhance your retirement benefit. With this, other important savings priorities such as establishing an emergency fund (see below) might take precedence over retirement savings in the scenario.
  3. If you have NO emergency fund—ideally, it would be best to contribute to both retirement and an emergency fund (which would contain approximately 6 months of expenses); however, this is not always possible. Many people, once they have taken those steps, discover that they can indeed save for both an emergency fund and for retirement. But some cannot do both simultaneously, and there are scenarios here where I believe that retirement savings should still take precedence over an emergency fund, particularly in the instances of employer match. Since funding and emergency fund is a comparatively short term goal – it might be best to redirect contributions until the account is funded, then returning to retirement focus.

Having said all of this, if you are in one or more of these scenarios, you should consult with your trusted retirement plan adviser or other financial professional before pulling the plug on your retirement saving in favor of other options, since everyone’s situation is different.

Do you agree that there are some scenarios where other financial matters might take precedence over retirement savings? If so, are there other possible scenarios that you can come up with where this might be the case? Would love for you to share with me on Twitter or at

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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