I'm a Financial Adviser: This Is What You're Really Losing if You Cut Back on Your 401(k) Contributions

Missing out on the benefits of the employer match and compounding growth could force you to work longer and lower your standard of living in retirement. Here are some alternative options.

By Chris Cohan, ChFC, RMA

published 9 October 2025

in Features

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(Image credit: Getty Images)

Since the pandemic, inflation and higher costs of living have pushed many Americans' wallets to the brink. They've been forced to cut back in several areas, including saving for the future.

A 2025 Morgan Stanley at Work study found about 39% of employees surveyed said they reduced their 401(k) contributions as a result of current economic conditions, and 67% say they're reducing contributions across all savings accounts. That's a 4% increase from 2024.

Some were forced to draw from those retirement savings. A 2025 report from Vanguard found a record 4.8% of 401(k) account holders took a hardship withdrawal in 2024, more than double the 2.3% recorded in 2019.

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While tough economic conditions have forced many Americans to conserve and stretch their dollars — are you putting your future at risk if you reduce or pause your retirement contributions?

Don't forget the benefits of contributing

One of the biggest benefits of contributing to an employer-sponsored retirement plan is taking advantage of the employer's match.

If someone reduces their contributions enough to no longer qualify for their employer's full match or pauses those contributions entirely, they're essentially walking away from free money. They're also preventing that money from compounding over time.

Depending on how long you reduce or pause contributions, you could be missing out on thousands of dollars.

For example, in 2025, the maximum employee contribution to a 401(k) is $23,500, with an additional $7,500 available for catch-up contributions for those age 50 and older.

Depending on their plans, workers ages 60 to 63 might qualify for a special super catch-up contribution of $11,250, for a total of $34,750.

You lose out on compounding growth, too

Aside from losing the match, pausing contributions entirely forces you to lose the benefits of compounding growth. Every dollar you contribute early in your career has decades to grow.

To give you a better perspective, let's say an employee has an annual salary of $50,000 per year and their employer offers a 100% match on contributions up to 5%.

If the employee reduces their contribution so the employer only matches 3%, that's a 2% loss each year. In dollars, that's a $1,000 loss each year.

If that money is growing at 7%, that 2% reduction, or $1,000 loss per year, will add up to $41,000 less in a retirement account after 20 years.

At the surface level, missing out on $1,000 a year might seem minimal, but over decades, it can cost you tens of thousands of dollars at retirement.

The tax implications

Pausing or reducing contributions can also have tax implications. If you have a traditional 401(k), contributing to that account reduces your taxable income in the year the contribution was made.

Pulling back on those contributions increases taxable income, which could potentially push you into a higher tax bracket if you're currently teetering on the edge.

If you have a Roth 401(k), cutting back on contributions forces you to miss out on growing tax-free assets for retirement.

Retirement plans are made with the assumption that you'll be making consistent contributions to your accounts.

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Reducing or pausing those contributions can create a financial gap that could mean working longer than you intended, saving much more aggressively in the future to catch up (which could lead to other sacrifices), or living on less once retirement comes.

What you could do instead

While it might feel like a quick fix, you should seriously consider the long-term tradeoffs. A couple of hundred dollars saved now could mean tens of thousands lost in the future.

If you find yourself struggling with expenses, consider making other adjustments before turning to your retirement account. Look into picking up extra hours at work or search for ways to earn additional income.

We're living in a gig economy, and the opportunities are endless. If you have a budget, revisit it and look for areas in which you can cut back. This could be subscription services, eating out or simply cutting frivolous spending.

If you don't have a budget, make one to ensure you're living within your means. If you feel your only option is to reduce or pause your contributions, meet with a financial adviser to see how that would impact your current retirement plan.

Chris Cohan is a registered representative of and conducts securities transactions through CoreCap Investments, LLC. Chris Cohan is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. NJP Estate Planning is a separate entity and not affiliated with CoreCap Investments or CoreCap Advisors.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Chris Cohan has dedicated more than 15 years to helping families establish and maintain comprehensive risk management and estate planning strategies. As a financial and estate adviser with RJP Estate Planning, he takes a holistic approach to wealth preservation, guiding clients through the complexities of wills, trusts and asset management. Chris also received a professional designation as a Chartered Financial Consultant through The American College of Financial Services and is committed to continuous education and professional growth.