Does It Always Make Sense to Max Out Retirement Contributions?

Most of the time it makes sense to maximize the contributions to your retirement accounts like 401(k)s or individual retirement accounts. In the broad sense, this is good advice and good practice. Not only does it allow you to save for retirement but it may also reduce your taxes.

There are, however, some cases in which it makes more sense to not make the maximum contribution to your various retirement accounts. Below are just three examples when it may make sense to focus your funds and your savings efforts on other financial objectives.

You have high-interest debt.

Sometimes it is better to have as little debt as possible when entering retirement. Things like credit card debt have the potential to seriously inhibit your long-term saving efforts. If you carry that debt into retirement, you may have to direct much of your income towards paying down the balances. That means you’ll have less income available to pursue your goals and support your lifestyle.

Many people don’t understand how long-term debt can cripple your saving efforts. Consider paying off this debt now so you don’t have to worry about it when you retire.

You are saving for a specific goal.

Perhaps you are saving for your children’s college. Maybe there’s a vacation home you’ve had your eyes on. You might even have some business ideas you want to invest in. These are all scenarios where it could be better to pay less into your retirement funds and invest in something else.

Retirement is a major financial goal, but it’s not the only financial goal in your life. Review all of your objectives and needs so you can balance your savings efforts among your top priorities.

You haven’t protected yourself from major long-term risks.

Life can be unpredictable. If you haven’t protected yourself from long-term risk you may want to think about doing so. That means having several months of savings available as an emergency reserve, and having tools in place to protect yourself from catastrophic risk.

Some of those tools include long-term care insurance or life insurance. Using some of the funds you would normally save for retirement to purchase these policies can ensure you are protected from unfortunate circumstances in your retirement. It can also alleviate the burden on your loved ones should something happen to you.   

Ready to develop and implement your retirement savings plan? Contact us at Carstens Financial Group. We can help you evaluate your objectives and needs, and develop a strategy. Let’s connect soon and start the conversation.

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

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