3 Reasons to Stop Funding Your Retirement Account Now

Key Points

• Contributing to a retirement account steadily can help you avoid financial stress during your senior years.

• There may be other accounts you should prioritize contributions to.

• There also is such a thing as having enough money saved already.

• The $23,760 Social Security bonus most retirees completely overlook ›

If you're a working American who reads personal finance websites on a somewhat regular basis, there's probably a certain mantra you're used to: Save, save, and save some more for retirement.

The reality is that while most working people can expect monthly benefits from Social Security, those checks won't be enough to maintain your standard of living. That's because Social Security will only replace about 40% of your pre-retirement paycheck if you bring home an average wage.

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It's common for retirees to need 70% to 80% of their former paycheck to keep up with their expenses without having to make too many unwanted cuts. Since Social Security will only provide about half that amount, your retirement savings may need to make up the rest -- hence the need to save, save, and save some more.

But in some cases, it could actually pay to hit the brakes on retirement savings. Here's when you may want to specifically not contribute to your IRA or 401(k).

1. You don't have an emergency fund

The purpose of an emergency fund is to be able to cover surprise bills without having to go into debt or potentially sell off investments at a loss to come up with the money. It's also to get you through a period of unemployment.

If you don't have at least a three-month emergency fund, then you should stop funding your retirement account and instead prioritize near-term savings. If you lose your job or need money in a pinch and have to tap an IRA or 401(k) early, there could be steep penalties involved. Plus, you risk having to sell investments when their value is down.

2. You're hoping to retire early

The nice thing about funding a retirement account like an IRA or 401(k) is enjoying tax breaks in the course of saving. But if your goal is to retire early, and you're on track to do so, then you may want to stop putting money into an IRA or 401(k) and instead start funding a taxable brokerage account.

Clearly, you'll lose out on benefits like pre-tax contributions and tax-deferred gains in a traditional retirement account, or tax-free contributions and withdrawals in a Roth. But you'll have the flexibility to tap your account whenever you want without having to stress over an early withdrawal penalty.

3. You've saved enough

It's possible to make the argument that there's no such thing as having too much retirement savings. But if contributing to a retirement account means denying yourself certain near-term experiences or luxuries, and you have an extremely robust IRA or 401(k) plan balance for your age, then you may be just fine to stop parting with your money that way.

Of course, do keep in mind that even a $1 or $2 million nest egg may not translate to as much retirement income as you'd think when you consider inflation and the need to stretch that sum. But if you're 55 with $4.5 million and you're happy with that balance, there's nothing wrong with saying your strategy from this point on is to leave your nest egg untouched until you stop working but spend your paycheck in full.

Usually, it makes sense to save for retirement when you have the ability to do so. But in these situations, you may want to stop funding your retirement account and go in a different direction.

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