Borrowing from Retirement

Not everyone agrees whether you should focus on paying off debt before saving for retirement.  On the one hand, if it will take you many years, or even decades, to eliminate every last penny of debt, it may be too late to save enough for retirement before you plan to stop working.  On the other hand, diverting money to retirement savings while you have too much debt outstanding may prevent you from reducing your debt load, or worse.



When you are in extreme debt, there is no good answer to this question.  The reality of an extreme amount of debt is that it will almost certainly take an extended period of time to pay off.  So to date, I have been contributing about 5% of my full-time salary towards my company's pension plan, with the company chipping in another 5%.  The problem is, I don't think this is working.

Yes, I am slowly accumulating retirement savings, but at what cost?  Despite making a number of significant changes to our spending habits, we continue to run out of rope when it comes to finding ways to make ends meet.  Last month, I even had to dip into my newly created emergency fund, cutting it in half to avoid running out of cash.

All of this has me questioning my current strategy of continuing to save for retirement right now.  Yes, the company matching of my 5% contribution seems like a shame to give up, but extreme times call for extreme measures.  Perhaps diverting this 5% of my income towards debt repayment will start the ball rolling in the right direction.

But of course, simply diverting retirement savings towards debt repayment is not enough.  I realize it is critical to have a plan to continue to decrease spending and increase earnings to the point where there is enough leeway to restart retirement savings.  And given the amount of debt we have to repay, we cannot wait until it is all paid off to reach that point.  I also realize that every year that goes by without continuing our retirement savings will have a significant impact on the overall amount we will be able to save before we may want to retire.

I will not be able to make thing change until January, since contribution rates can only be changed annually.  Therefore, in the mean time, I have decided to withdraw about $4,000 from my retirement savings, to keep us going until then.  Short sighted?  Perhaps.  But at this point, I feel this is a better option to falling behind on our bills, which we have so far managed to avoid.  I think that as long as we use this only as a means to buy us the time to get our spending and income to where it needs to be, the sacrifice will have been justified.

Whether that actually happens, time will tell.  Stay tuned.