In today’s challenging economic landscape, many state employees face a difficult balancing act: managing increasing medical premiums without corresponding salary increases as of the date of publication. This financial squeeze can make it tempting to reduce retirement plan contributions as a way to offset rising healthcare costs. However, this short-term solution can significantly impact long- term financial security.
The Hidden Cost of Reducing Retirement Contribution
While decreasing retirement plan contributions may provide immediate budget relief, consider these long-term implications:
- Compound growth opportunity loss: Even temporarily reducing contributions can significantly impact your retirement savings to the power of compound interest. A $200 monthly reduction in contributions over just five years could mean missing out on tens of thousands of dollars in retirement, depending on market performance and your time horizon.
- Cost of a 5-year pause: A 35-year-old who stops contributing $500 monthly for just 5 years could lose approximately $170,000-$250,000 in potential retirement savings by age 65 (assuming 6-7% average annual returns).
- Tax advantages forfeited: Contributions to qualified retirement plans often provide immediate tax benefits, reducing your taxable income. Lowering contributions may actually increase your tax burden, offsetting some of the short-term financial relief.
Instead of reducing retirement contributions, reassess your budget holistically
Look for other areas to trim expenses before reducing retirement savings. Small adjustments across multiple spending categories often feel less restrictive than a major cut in one area.
Even during challenging financial periods, maintaining consistent retirement contributions- even if you can’t increase them- provides significant long-term benefits. The habit of regular saving, combined with compound growth over time, remains one of the most powerful tools for building financial security.
Planning for the Future While Managing the Present
Financial wellness isn’t about making perfect decisions- it’s about making thoughtful ones that balance current needs with future goals. If you’re struggling with healthcare costs while trying to maintain retirement savings:
- Meet with a TIAA financial consultant for personalized advice. Visit tiaa.org/schedulenow
- Get insights on managing debt at tiaa.org/managedebt
- Create a plan to keep your spending in check at tiaa.org/budget
- Contact CAPTRUST to schedule your virtual meeting and create your personalized Retirement Blueprint- designed to keep you on track to reach your goals. Click here to schedule.
By exploring alternative budget adjustments, maximizing available benefits, and taking a holistic approach to financial planning, you can navigate current challenges while still protecting your future. Remember: retirement savings isn’t just about the future—it’s about creating peace of mind today.