JW’s Financial Coaching Podcast JW’s Financial Coaching Podcast-A show devoted to answering your personal financial questions and covering current events in personal finance. Giving people a new perspective on their money!

March 5, 2017  
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  • Continuing our series on lessons learned from coaching
  • When to cut out retirement savings
  • What to do with the money instead
  • Why the key word is TEMPORARILY
  • Quote of the lesson from Mark Twain

 

 

 

 

 

Every time I suggest it to a client, I get a weird look from across the table or there is an awkward pause on the other end of the phone line.

Them-You want me to cut back on retirement?

Me-Yes I do

Them-But what about my age? The match? Compound Interest?

Me-Don’t worry it is only temporary and you’ll more than make up the lost interest gained, match, and contributions in no time.

Today’s lesson in the lessons learned while coaching series is about cutting  back on retirement temporarily to reach goals. This lesson is a little different than the first two in the series because investing for your retirement is a good thing. That is why I get weird looks from people when I suggest that they do it.

Now I don’t recommend you do it 100% of the time, but on certain occasions I do push the suspension of retirement contributions issue.

When?

Typically the only reason why I would temporarily postpone retirement savings is when you have a special financial goal you want to accomplish and you are going to be super focuses on completing that goal.

Basically the money must be used for good, not for life style inflation, self-indulgence, or making yourself look good. It’s when you are going to use every dollars not put into investing and instead put it towards you goal.

With that being laid only, I recommend that when you have debt (excluding your mortgage), to halt any retirement contributions and instead put that money towards your debt.

That is regardless of how much your employer matches, how old/young you are, or if the market is hot or not.

Why?

With that being said I still get funny looks and comments like “You mean stop ALL retirement savings?” Which my answer is yes.

It’s a tough thing to do because we’ve been told that we need to save diligently to have enough money for retirement and that in our country a lot of us are under prepared in that area. Also by stopping retirement you’ll lose out on the power of compound interest and you’ll also miss out on the match.

While I can’t argue any of those points, because they are true, I can try to shift the focus a big. I do believe that the power of being out of debt supersedes retirement contributions.
What I’ve found is that by being focused on one singular task you are able to get that task done better and faster than if you are trying to do three other things at once.

Also by getting control of your money and paying off your debt you’ll more than make up for the temporarily loss of compound interest and the company match by having more money to invest in the long run.

My recommendations

I look at this as a two year thing. Often if you are super focused and intense on paying off your debt, you can become debt free or close to being debt free in two years.

So if you stop funding your retirement and take ALL that money and put it towards your debt, not using that money for lifestyle you will gain control of your income.
Now with that being said you need to be serious about it. If you are ‘kind of” going to get out of debt, then it probably isn’t worth it.

But what if you have a ton of student like student loans and it is going to take your longer than two years. Would you still recommend holding off on retirement savings? The answer is yes, I would give it two years and see where that takes you. If you are still a long ways off then I might consider starting contributing to retirement to get the company match. But no more than that.

Bottom line is that investing is important, but so is being debt free.

Other resources mentioned in the show:

Today's quote of the lesson is brought to you by the JW's Financial Coaching Newsletter

“The secret of getting ahead is getting started". ~ Mark Twain

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