Should You Keep Saving for Retirement if You're Worried About a Recession?

I met a group of friends for brunch this past weekend, and somehow, the discussion shifted from our kids' soccer tournaments and cellphone obsessions to the state of the economy.

Nobody knows what's in store this year as tariff policies unfold and inflation does its thing. But the consensus among my group of friends is that things could easily take a turn for the worse.

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And I know we're not alone in our thinking. Read any financial news site online, and you'll probably see the word "recession" in at least one headline.

That's an event everyone should be preparing for now. But should you keep funding your retirement savings if you're worried about a recession? It depends.

You need to cover your near-term needs first

I'm someone who encourages people to save for retirement as much as possible and whenever possible. Not only will you likely need the money later in life, but you get a pretty sweet tax break for contributing to a 401(k) or IRA, so why not do it if it's money you can afford to part with?

But if you're worried about a recession -- which people should be, frankly -- then the most important thing to do is assess your emergency fund. And if it's not where it needs to be, then it needs to take priority over your retirement savings, at least for a little while.

As a general rule, people are advised to keep three to six months of living expenses in emergency savings in the event of job loss, or to cover unplanned bills. I think it's prudent to stick to the higher end of that range unless your job is extremely recession-proof.

I would also urge certain people to maintain an emergency fund beyond the six-month threshold. If you're self-employed, that's one reason to have more savings. If you lose your job, you won't be entitled to severance or unemployment benefits.

I'd also suggest having extra emergency savings if your job is very unique, or if your industry has the potential to be highly impacted by a recession. If you're a marketing director for a high-end fashion designer or department store, that's the sort of job that could go away if a recession hits and consumers scale back on luxury purchases. It's also not necessarily the easiest job to replace.

A short-term pause shouldn't hurt you

I've been saving for retirement since my 20s, but there have been periods when I've had to cut back on 401(k) or IRA contributions to address more pressing needs. If your emergency fund isn't strong enough to get you through a recession, this may be one of those times for you.

I would never suggest taking a five-year break from funding your nest egg (unless, of course, it can't be helped). But taking a three- or four-month break from retirement plan contributions to boost your near-term cash reserves probably won't hurt you in the long run. What it could do is set you up to avoid debt and other unwanted consequences in case the economy tanks this year and your job ends up on the chopping block.

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