The 401(k) Mistake That Could Cost You Millions in Retirement Savings
Thinking about reducing your 401(K) contributions in the current market? Here are six reasons why you might want to reconsider.


Reducing your 401(k) contributions might seem like a good idea in the current economy. With so many uncertainties from tariffs to recession talk, you can’t be blamed for wanting to pull back, hunker down and save as much as possible.
You wouldn’t be alone. It’s something weighing on the minds of many investors.
“It's the first time in awhile that we are having those questions asked by clients," says Daniel Milan, founder, managing partner and CIO at Cornerstone Financial Services. "If I reduced it (my 401(k) contributions) or made a change, how would it affect my long-term financial roadmap?”
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Reducing 401(K) contributions when stocks are down and costs are rising is an option, but it's not the best one to choose. It can cause irreparable harm to your retirement savings. Here’s how.
401(k) contribution reduction dangers
1. It limits your lifetime earnings potential
Save early and often is the mantra for many financial advisers for good reason. Due to compounding, the more you save and the longer you're invested, the greater your balance will be over time.
With compounding, interest earned on an investment is added to the principal amount, then future interest is calculated on this new, larger amount. This process happens repeatedly over a set period, often months or years, depending on the investment.
Take a 50-year-old individual with $1.24 million in her 401(K) who contributes $27,500 a year ($23,500 is the 2025 yearly limit, plus up to $7,500 in catch-up contributions for those age 50 and older). Assuming a growth rate of 5.5%, her balance will grow to $4.57 million after 20 years, says Milan.
If she reduces her contributions to $12,000 a year, her balance after 20 years will be $4.04 million, about $540,000 less. “That’s not a small number,” says Milan.
What about this: Boldin, the financial planning tool company, ran two scenarios for Kiplinger.com for a married couple aged 45 with a 10% employee contribution and a 3% match. If one spouse’s contribution were stopped, the chances of saving enough for retirement would fall by 5%, and the estate would decline in value by $2 million at longevity age.
The longer you reduce contributions, the bigger the impact. If you reduce your contributions for six months, it won’t derail your retirement savings plans as much as if you kept a lower contribution rate for years.
“If it’s short-term in nature, that doesn’t have a major effect, but if something becomes the new normal or habitual, it can have a significant effect over 10 or 20 years because it decreases compounding,” says Milan.
2. You settle for less
The phrase "old habits die hard" couldn’t be truer. Once you set something in motion, it’s hard to come back. That’s particularly true when it comes to your 401(K).
If you reduce your contribution rate, chances are that will become your new baseline, which means you’re selling yourself short. The purpose of a 401(K) plan is to pay yourself first so you can live comfortably in retirement.
“If you contribute less, you are losing that habit,” says Nancy Gates, lead educator and financial coach at Boldin. “When you get a job, you are automatically enrolled up to a 3% or 4% match. You are not even thinking about it. If you stop, you may never go back to it.”
3. Miss out on growth opportunities
Buy low and sell high is the goal of most investors, but in volatile markets, many tend to do the opposite: Sell low and buy high.
If the markets have got you spooked into considering reducing your future 401(k) contributions, think again.
History has proven that stocks that go down tend to go back up. If you reduce your contributions when stocks are in decline, that’s less money that can benefit when the markets appreciate again.
Stocks recouped losses and then some after the dot.com boom and bust, the Great Recession and COVID. Even today, markets have recovered somewhat from the steep sell-off seen earlier this spring. If you stay invested when markets are depressed, you can get more shares for your money.
4. You leave free money on the table
To reward you for saving for retirement, many companies offer a matching component with their company-sponsored 401(k)s. The employer commits to match a percentage of your contributions, typically, 3% to 4%.
If you lower your contributions below the 401(K) match, you're leaving free money on the table. Less money in your 401(k) means less money that can benefit from compounding.
If you're determined to do it, Milan says to be mindful of the match.
“At the very least, we try to draw a hard line at whatever the match is,” says Milan. “Once you go below that, even in the short term, you are giving up free money that is part of your compensation package.”
5. It could push you into a higher tax bracket
If you're on the cusp of being in a higher tax bracket, contributing less to your 401(K) might push you over the edge. The income not going into your 401(k) tax-free will count as taxable income.
Gates says that if you still want to reduce contributions, make sure you aren’t lowering it so much that you have to pay more taxes.
6. It could force you to work longer
You might plan to retire at 65 or 66, but that roadmap could veer off course if you reduce your 401(k) contributions for an extended period. It could create a retirement shortfall that will require you to work longer or change your lifestyle when you exit the workforce.
Take Milan’s example of the person who contributed $12,000 per year instead of $27,500 and ended up with more $600,000 less by the time they retired. If you have $600,000 less in your 401(k), will you still be able to live comfortably in retirement? If not, you might be forced to delay retirement for a year or two or more.
When it makes sense
Reducing your 401(k) contributions should be a last-resort lever you pull and only use in extreme cases. If you can’t pay your bills or have a lot of debt, it might prove prudent to tackle that first.
“When you are starting on a path of financial wellness, the first thing to do is make some income and pay expenses on time, every time. The next goal is to have an emergency fund,” says Gates.
“After that, the goal should be to pay off high-interest debt before saving for retirement. If you can’t pay your bills on time and have high-interest debt, pause contributions until you're at the right place.”
Related content
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.
-
Stocks Edge Higher With Nvidia, Fed in Focus: Stock Market Today
The AI bellwether reports earnings after today's close, while Wall Street is keeping a cautious eye on President Trump's attacks against the Fed.
-
New Trump Tax Bill: Five Changes Homeowners Need to Know Now
Tax Changes Trump’s new tax legislation is reshaping how tax breaks for homeowners work.
-
The Smart Way to Retire: 13 Habits to Steal From the Wealthy
Check out these practical strategies that anyone can adopt, not just the rich, and get closer to achieving your retirement dreams.
-
Snowbirds — Want to Ship Your Car to Another State? Beware These Three Scams
Snowbird season is still a couple of months away, but if you plan to ship your car down south or across the country, here's how to avoid three common scams.
-
I’ve Got $50,000 Burning A Hole in My Pocket. Where Do I Park It Amid Rate Cuts So I Don’t Lose Ground?
Why a mix of CDs can protect $50,000 from shrinking yields.
-
I'm a Financial Planning Pro: Do Your Family a Final Favor and Write Them a Love Letter
Specify your preferences in this personal document that shares your wishes on how you want to be remembered and celebrated. Your family will thank you for easing an emotional time.
-
The Future of Financial Advice Is Human: Gen Z Trusts Advisers, But AI Skills Matter
Graduates entering the workforce trust human advisers more than AI tools with their financial planning. But AI can still enhance the client/adviser relationship.
-
DOGE Compromised Social Security Data, Says Whistleblower
The whistleblower accused the DOGE officials of copying over 300 million Social Security numbers.
-
I'm a Wealth Adviser: If You're a DIY Investor, Don't Make These Five Mistakes
Even though you may feel confident because of easy access to investing information, you may be making mistakes that could compromise your long-term performance. Here's what you should know.
-
Building a Business That Lasts: The Critical Steps to Avoid Blunders
'Another Way' author David Whorton offers advice on how to build an 'evergreen' business that endures by avoiding common pitfalls that can lead to failure.