4 Situations When You Shouldn't Save for Retirement

Almost all of the financial literature advises you to save for retirement as much as possible. And for the most part, following this advice will help you to do well, especially considering the proportion of workers who are drowning in debt and have little or nothing saved for their later years. Yet, if you blindly follow this advice, you might not end up with the comfortable life this strategy often promises. Here are four situations when it doesn't make sense to save towards your retirement.

[See 10 Places to Retire on Social Security Alone.]

You have high interest debt. You shouldn't save for retirement at the expense of not paying down debt that has a very high interest rate. Eliminating credit card or other debt with an interest rate of over 20 percent should be everyone's number one priority, even above retirement.

A major career or life opportunity. Some people aren't willing to let go of their current retirement savings rate to begin a new career or life opportunity. It's often much harder to switch careers or start a business when you have a high salary because you are afraid of letting go. Yes, saving for retirement is important, and it is costly to pause the efforts even for a few years. But if there is a once in a lifetime opportunity waiting for you, it might be worth the risk. The key is to carefully consider your options and to be realistic about the outcome.

[See 7 Signs of a Good 401(k) Plan.]

You have no liquid savings. If the financial crisis taught us anything, it's that liquidity is just as important as having a huge net worth. If bills are due and you don't have the cash to pay for them, it doesn't really matter if you own a huge portfolio of real estate and retirement accounts. For most working families, liquidity is built via a family emergency fund. You never know what life will throw at you. If you are laid off due to a bad economy, for example, the last thing you want to do is sell your investments when the value is down or incur a penalty to cash out your retirement accounts because you don't have the liquid funds to pay your mortgage.

You haven't compared all the available options. Even if you are debt free and have a substantial emergency fund, you may not yet be ready to save for retirement if you haven't selected the best retirement savings vehicle. Don't assume that your employer's retirement account is the best place to do all your saving. Evaluate whether your 401(k) is offering the best tax treatment for you or if a Roth IRA is a better deal for your situation. In some cases, a traditional IRA might be better than a 401(k) because you can buy the same types of funds without the high expenses. Not all retirement accounts are created equal, so you need to select a retirement account that minimizes the fees and taxes you pay.

[See How to Prevent Outliving Your Retirement Savings.]

Saving for retirement should definitely be on everybody's mind. But saving for retirement without considering your immediate financial circumstances can be detrimental to your financial health.

David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.

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