Almost Half of Americans Have Stopped Saving for Retirement. Here's How to Get Back on Track

Saving for retirement is really important, namely because living on Social Security benefits alone has the potential to leave you cash-strapped later in life. But it can be hard to prioritize retirement savings when other bills arise, or during periods when economic conditions are just plain not cooperative.

Such is the boat many people are in today. Inflation remains problematic even though living costs have come down in a number of spending categories. And since many people are worried about a near-term recession, it's easy to see why they might prefer to pump extra money into their savings accounts instead of funding an IRA or 401(k) plan.

A good 46% of Americans say they've been forced to put their retirement savings efforts on pause due to current economic conditions and concerns, according to data from Allianz Life. But if you've gone a similar route, it's important to try to get back on track as quickly as possible.

The problem with taking a break from retirement savings

Let's be clear. If you don't have a fully loaded emergency fund, then pumping money into regular savings should take precedence over retirement plan contributions.

Your emergency fund might bail you out next month, next quarter, or next year if a recession strikes, or if you encounter a surprise bill your regular paycheck can't cover. So you should, in fact, hit pause on retirement plan contributions if your emergency fund isn't complete.

But if you have what you consider to be a full emergency fund, then you should know that pausing retirement plan contributions could be a financially detrimental move. For one thing, contributions to a traditional IRA or 401(k) plan get to be made tax-free. So funding one of these accounts is a great way to shield some of your income from the IRS's reach.

Also, believe it or not, missing out on just one year of retirement plan contributions could have a major impact on your long-term wealth. That's because for each year you don't add money to an IRA or 401(k) and invest it, your money doesn't get a chance to grow.

Let's assume you'd normally fund your IRA to the tune of $5,000 a year, only you opt not to do so this year due to recession fears or other reasons. The stock market has, over the past 50 years, delivered a 10% average annual return (before inflation), as measured by the performance of the S&P 500. If you're 25 years away from retirement, that missing $5,000 in your IRA could translate to $54,000 less savings all in.

How to get back on track with retirement savings

You may have paused your retirement plan contributions to cope with inflation or shore up your emergency fund in case a recession strikes. If, at this point, you're set with emergency savings but you're still grappling with higher bills, try taking a deep dive into your spending to see where your money is going. You may be able to identify a few discretionary expenses you can shed or cut back on to free up money for your IRA or 401(k).

And to be clear, it doesn't have to be a ton of money if you can't swing much. You're better off contributing $300 this year to retirement savings than nothing at all.

At the same time, we're not in a recession, and the gig economy is still nice and active. And that means you may have a prime opportunity to pick up a side hustle that boosts your income modestly. That could be your ticket to making retirement plan contributions while not having to cut your spending too drastically.

Saving for retirement is something you should really aim to do on a steady basis when possible. So if your IRA or 401(k) has been forced to take a back seat this year, it pays to do what you can to start making contributions once again.