Why you should not be saving for retirement

Any good financial planning advice will include instructions on saving for retirement. While all of that is true, there is a condition under which you should not be saving for retirement. In fact, if you do match that condition then you should stop any retirement contribution immediately. While this does sound crazy, the intention here is to save for something more important, the present.

In a nutshell, your emergency fund should come first. If for any reason the emergency fund is low or the target has not been met, then it should be the sole beneficiary of your savings. An emergency fund should have at least three months of total expenses saved. Unfortunately, a study by the Federal reserve showed that more than 60% of Americans have less than $1000 in the bank. Even worse is that they will need to go into debt or borrow to pay for a $400 emergency.

Part of the reason is that most people prioritize spending or retirement savings over all others. The thinking is that they want to maximize the programs where employers match the dollars put into savings by the employee. Then in the event of an emergency, they can tap into the retirement fund. While some funds do allow for hardship withdrawals, most come with a 10% early withdrawal penalty. The retirement funds or not meant to be used as emergency funds and there are penalties and taxes that reflect that.

If you haven’t done so already, ensure you have a healthy emergency fund before contributing to any other.