5 Reasons You Shouldn't Be Saving For Retirement

Illustrated by Louisa Cannell.
Retirement planning seems to be the most pervasive and consistent financial advice you get from your boss, co-workers, friends, and family. It's financially sound advice based on the tax savings, tax protected investing, and, if you're lucky, a company match. However, fixating too much on long-term planning may subject you to financial struggles in the short term.
As a financial planner and founder of Financial Gym, I feel personally responsible for helping my clients not only identify their life goals, but also making sure they have the most effective plan for achieving those goals. And often times, I think the traditional school of thought around retirement planning doesn’t consider a person’s whole financial picture. Yes, saving for retirement is a must, but so is planning for your other life goals — whether that’s paying off your student loans or traveling the world, or both.
I want to be clear that retirement savings is an important part of your overall financial plan, and if you earn enough money to save for your short- and long-term goals at the same time — then you should. However, if you have to prioritize your savings goals, then it makes sense to focus on your more immediate goals first and catch up on retirement when you can. I’ve seen too many clients prioritize their 401(k) contributions only to be stressed out from lack of cash or high interest rate credit card balances that won’t go away. Before you commit to your retirement accounts, review your progress to your other money goals first, and cut out the unnecessary financial stress along the way.
So before you put every extra penny into your retirement accounts, consider these five reasons why you shouldn’t save for retirement.
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Illustrated by Louisa Cannell.
The minimum amount you should have in your emergency savings account is six months of your monthly expenses. If you spend $2,000 per month, then you should aim to have $12,000 saved in your emergency account.

I recently met with a client who was saving 25% of her income into her company’s 401(k); however, she only had $400 in her checking account. It scares me to think about this woman potentially losing her job or having an unexpected emergency that she couldn’t pay for with cash.

You can save for your emergency savings just like you save for retirement by setting up an automatic transfer to your savings account. Aim to set aside 10 to 15% of your gross monthly income. Financial surprises happen all the time, whether it’s an unexpected move, a friend’s wedding, four new tires, a health emergency, etc. A fully-funded emergency account makes those surprises less stressful because you have the cash to deal with them.
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Illustrated by Louisa Cannell.
We frequently see clients at the Financial Gym who struggle to make debt payments, but they’re also actively trying to save for retirement. I met with one client who could only make her minimum debt payments because that was all the money she had left every month. By only making her minimum payments, she grew increasingly more depressed at the thought of never repaying the $5,300 of credit card debt. If you have student loan or credit card debt, and the interest rates are over 9%, you should consider not saving for retirement and focusing on debt repayment instead.

On average, you can expect your retirement portfolio to earn 6 to 8% in investment returns, but if you’re paying more than that in interest rates on your debt, then it’s not the most efficient use of your money. My client shut off her 401(k) contributions and moved the extra funds to her credit cards. Within 10 months, she paid down the $5,300 in credit card debt and resumed her 401(k) contributions. Yes, she lost out on investment returns in that period of time, but pausing the contributions allowed her to actually pay off the debt fully versus just making minimum payments.
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Illustrated by Louisa Cannell.
Home ownership is a wonderful goal, but most people grossly underestimate just how much cash they will need to accomplish it. If you plan to purchase a home that costs $300,000, you will need a minimum of $70,000 in cash to cover the 20% down payment to secure a mortgage, $5,000 to $10,000 in closing costs, and a $5,000 contingency fund for when something breaks in your new home. (No matter how great your home inspector is, something will break.) There are a number of programs that will allow you to put down less cash — or take money from retirement plans — but as a worst-case scenario, you should plan to cover your entire home buying needs with cash.

My single biggest financial regret is that I didn’t have enough cash on hand to buy my home, and I decided to take money from my 401(k) plan to cover some of the down payment and closing costs. It was a painful decision, but it was way worse the following April when I filed my taxes and had to pay income tax on the money I withdrew from my 401(k). In past years, I had always received tax refunds, but that year I had a $29,600 tax liability, thanks in part to the early withdrawal penalties and income tax I had to pay on the money I received from my 401(k). If you know you’re going to have a large expense like this in the next three-to-five years of your life, start saving for it in cash rather than in your retirement account.

(It's worth noting though that if you have a Tradition or Roth IRA, there are rules, but you can withdraw up to $10,000 just once for home buying tax free.)
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Illustrated by Louisa Cannell.
My father always said that children were the death of net worth, and before I had my own little net-worth drainer, I thought my dad was being cruel. Now I know he was just being honest. There are numerous studies, which discuss the significant costs of raising a child, and by all accounts, these are true; however there are other costs to having children that many people don’t think about.

Deciding to have children is the easy part, but for many couples, the process of doing so is not as easy, and if it proves challenging, you can expect large expenses before even having the child. Fertility treatments can range from $1,000 per try for hormones to $18,000 per try for in vitro fertilization, and once you start, you have no guarantee how many attempts it will take until you’re successful. If this doesn’t work, and you want to consider other options, the average adoption costs over $30,000.

If having a child is not in your immediate plans and you want to freeze your eggs, each cycle will cost you around $10,000. Children are a blessing, but they do cost money , and the best way to prepare for them is to save up your cash before you prioritize your retirement.
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Illustrated by Louisa Cannell.
A common theme I see with a number of our clients at the Financial Gym is a desire to own their own business at some point. As an entrepreneur, I can say that this is the best and worst decision you can make financially. There is nothing greater than being your own boss and pursuing something you’re passionate about; however, it’s a costly endeavor to build a business, and it never happens as quickly as you would like. You could have the greatest idea ever, but it will take time before you can get traction and really start making money from it.

The best way to weather the stresses of the inconsistent cash flows of an entrepreneur, and avoid significant and expensive credit card debt, is to have the cash in advance to do so. Depending on the type of business you are going to start, you could estimate ~$30,000 in start-up costs and that doesn’t include paying for your own bills before you can take a salary.

I advise clients to have a minimum of $50,000 saved in a start-up fund for their business. The great news about keeping these funds from your retirement account is that if you are successful, your business will become your retirement fund as well.
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