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While you may be looking for ways to have more money in your budget, it might be tempting to stop contributing to your retirement account. But, especially if you’re still receiving a paycheck, there are good reasons to continue contributing.

Before you make any fast decisions, take a realistic look at your budget. Are there places to cut back, even temporarily, other than your retirement plan? For example, could you temporarily cancel subscriptions or services?

If, however, making your full contribution means you just can’t cover your expenses, consider reducing the amount or skip a few before you decide to stop altogether. There are solid benefits to sticking to a plan.

You’ll have an opportunity to get more for your money. Believe it or not, a recession can be a unique opportunity. Since you can buy shares at lower prices, you’ll be able to buy more shares than you would normally. Once the market bounces back, not only will the shares in your account increase in value, but you’ll have more shares and, thus, have the potential for greater earnings.

The principle of dollar cost averaging starts with you contributing a set amount at regular intervals. By spreading out your payments, you can take advantage of market corrections and discounted pricing without having to try to figure out the optimal time. Or, in other words, your fund will adjust to the rhythm of the market, buying more shares when prices drop and fewer as they rise.

Here’s a very simplified example.

  • Suppose $25 comes out of your paycheck for retirement every week. Let’s say you bought a particular stock at $10 a share, which means you could purchase 10 shares the first month.
  • In month 2, the market declines and your 10 shares are now worth $5 each. With this month’s contribution, however, you’d be able to purchase 20 shares instead of only 10, so now you own 30.
  • If the market were to rebound in month 3 and your shares are back to being worth $10 a share, you’d buy this month’s 10 shares, and you’d now own 40 shares instead of 30.

Although in real life, the market probably wouldn’t rebound that quickly, you can see why automating an investment strategy will give you a higher probability of success over time than trying to only invest during good times and avoiding investing in bad times.

You’ll have more money when you need it. If you already have a retirement plan, you don’t want to disrupt it if you don’t have to. And, there are two important things to consider. The first is the power of compounding interest. Some people say it’s like earning money on your money, and here’s why.

Suppose you’ve contributed $10,000. If it earns just 5 percent a year, at the end of the first year, your balance would be $10,500. But, by the end of year 10, assuming you’re still earning 5 percent, that $10,000 will have grown to $16,289. And, after 30 years, you’d end up with $43,219 on your original $10,000 investment. If you had continued adding to the original $10,000, your fund would likely have grown even more.

Contribution of $10,000
Contribution End of Year 1 Year 10 Year 30
$10,000 $10,500 $16,289 $43,219

So, even taking market fluctuations into account, continuing to contribute (and taking advantage of any employer matching dollars) is normally positive for retirement accounts’ long-term growth. If you stop making contributions, you’ll disrupt your plan and have less available if you ever need to withdraw money later, whether because of hardship, to make a large purchase (like a house) or you’re ready to retire.

A second thing to consider is you may be eligible for a tax break. Depending on the type of retirement plan you have, if you make your contributions with pre-tax dollars (or before you’ve paid taxes), that amount will be deducted from your income, and you’ll pay tax on the balance. So if you make $50,000 and you contribute $2,500 to your plan, you’d owe taxes on $47,500 instead of the full $50,000. That means if you don’t contribute, you could end up with a higher tax bill and also have less money in your retirement account than you normally would.

You won’t want to leave money on the table. Speaking of employer matching, although some employers have suspended matching, you’ll want to take full advantage of this perk if you have it, because it’s basically free money.

Here’s why. Let’s say your employer will match up to 5 percent of your pretax income. If you earn $50,000 a year, a 5 percent match would mean you’d contribute $2,500 and your employer would contribute $2,500. So, for your $2,500 investment, you’d have $5,000 in your account, plus any growth. If you decided not to contribute anything, you’d be losing out on an extra $2,500 plus its growth.

Contribution of $2,500
Your Contribution Your Employer’s Match What Goes Into Your Retirement Account
$2,500 $2,500 $5,000

You have protection, if you need it. The Bankruptcy Abuse Prevention and Consumer Protection Act protects many types of individual retirement accounts from creditors. So, if you had to declare bankruptcy, the money you’ve contributed may be protected, and you might want to have as much money saved as possible. Your attorney or financial advisor can tell you if your account would qualify.

And, the CARES Act of 2020 provides that you may be able to withdraw up to $100,000 between Jan. 1 and Dec. 31, 2020 without paying a 10 percent penalty, even if you’re not 59½. Although income taxes for this distribution will still be due, you can spread payment out over 3 years.

You should take a long view. One of the best pieces of advice I ever received was to take a long-term view of investing. We’ve learned from experience, that in spite of periodic downturns, the market and portfolios have rebounded over time, so sticking to a plan is usually the best approach.

You can work with an advisor. For more than 20 years, Navy Federal Investment Services' financial advisors have worked closely with members to help them build a strong financial foundation in all types of economic environments. To learn more about achieving your financial goals through planning, contact one of our advisors, visit or call 1-877-221-8108.

Kevin Driscoll is VP, Advisory Services at Navy Federal Financial Group.

Navy Federal Financial Group, LLC (NFFG) is a licensed insurance agency. Non-deposit investments, brokerage, and advisory products are only sold through Navy Federal Investment Services, LLC (NFIS), a member of FINRA/SIPC and an SEC-registered investment advisory firm. NFIS is a wholly owned subsidiary of NFFG. Insurance products are offered through NFFG and NFIS. These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal. Deposit products and related services are provided by NFCU. Financial Advisors are employees of NFFG, and they are employees and registered representatives of NFIS. NFIS and NFFG are affiliated companies under the common control of NFCU. Call 1-877-221-8108 for further information. 

This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.