The Answer May be “no” in Some Circumstances.
In 2023, do you predict a recession? Things are at a crossroads where either path is possible. In 2024, the Fed increased interest rates by a significant amount to slow the rising price of goods and services. And the Federal Reserve isn’t finished with rate hikes yet.
Federal Reserve Chair Jerome Powell stated in late November that the Fed is working to reduce inflation to the 2% target zone. And rate increases are the only way to get there quickly.
However, these rate increases may result in a significant reduction in consumer spending. Stocks in many sectors, including but not limited to retail and hospitality, could take a beating. The economy might even go into recession, which would mean even more people are out of work.
However, that outcome is by no means guaranteed. Annually, the Consumer Price Index rose 6.5% in December and compared to the pace seen in November, that is significantly slower. If this trend continues, the Fed may delay future rate hikes.
However, with a crystal ball, we can know what will occur. As a result, you should get ready for the possibility of a recession in 2023. But should you continue saving for retirement or take a break if economic conditions deteriorate? Well, that’s debatable.
Prioritize meeting immediate expenses over saving for retirement.
Preparing financially for your golden years is crucial. Seniors relying solely on Social Security may find themselves in financial hardship after retirement. It is, therefore, essential to access supplementary income sources, such as those provided by a 401(k) or individual retirement account.
Although you may believe that retirement savings should be a top financial priority, the reality is that short-term needs often must be prioritized to make ends meet. And if things get worse in 2023, you might have to reduce your contributions to your IRA or 401(k) so that you can put more of your focus on your emergency fund.
Only contribute money to your IRA or 401(k) right now if you have enough in a savings account to cover three months of living expenses (k). Instead, you should save more for a rainy day to avoid going into debt if the economy takes a turn for the worse and you lose your job.
It’s a Matter of Prioritization.
Although retirement savings are crucial, meeting immediate financial obligations is more pressing. Therefore, it is acceptable to temporarily reduce or even stop making IRA or 401(k) contributions if the economic climate worsens and your wages are cut or if you become increasingly worried about losing your job.
An increasing number of people are feeling the pressure to save for retirement due to Social Security’s possible benefit cuts in the not-too-distant future. It would be best if you didn’t put off contributing to your IRA or 401(k) unless necessary, but there may be times when you need to. If you tell yourself that, it may help weather a downturn more quickly if and when it occurs.