You know the drill: Save 15% of your income to your 401(k) for a shot at a decent retirement. You've played by those rules, but now you're second-guessing the strategy. With all the economic uncertainty surrounding the coronavirus pandemic, is it really the right time to lock money away for the long term?

You've heard the bleak reports about employment in the U.S. since we started shuttering whole communities to contain COVID-19. On April 3, the U.S. Bureau of Labor Statistics reported that nonfarm employers cut 701,000 jobs in March and unemployment rose by 0.9% to 4.4%. Leisure and hospitality workers felt the brunt of the hit, with 459,000 jobs lost in that industry alone. Health care, social assistance, professional and businesses services, retail trade, and construction workers were also affected.

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That news might compel you to go into financial defense mode -- which usually involves hoarding cash by making minimum payments on debt and, possibly, pausing your 401(k) contributions. It's natural to feel nervous about those 401(k) contributions, even with the recent legislation that allows you to borrow your retirement savings without penalty. But is your situation dire enough to justify reducing your contributions? If more than two of the following four indicators apply to you, the answer might be yes.

1. Your income has dropped

Employers around the country are handling these economic circumstances in different ways. You may have had your pay cut or your hours reduced. Or maybe your compensation package hasn't changed, but you're seeing a big drop in sales commissions, because your customers just aren't buying right now.

If your pay is down significantly enough that you can't cover your essential bills, a temporary reduction to your 401(k) contributions could be justified. Before you make any changes, do these things:

  • Understand your shortfall. Your income is lower, but your expenses are probably down, too. If your contribution is based on a percentage of income, and your pay is down, the dollar amount of your contribution is already lower than it was. Plus, social distancing protocols naturally keep you away from shopping malls, happy hours, and meals out with friends. Don't make decisions on how you think your budget will play out. Sit down, and run the numbers based on your actual, current spending. Know exactly what your cash flow shortfall is.
  • Look for ways to reduce your expenses. You're better off cancelling your cable temporarily and not disrupting your retirement plan contributions if you can swing it. As you review your spending, question the necessity of everything you're paying for.
  • Lower the contribution before you drop it entirely. Any decrease in your contribution slows your earnings potential long-term. Use your budget to guide you and make the smallest adjustment possible.

2. You're falling behind on credit card debt

Credit card debt snowballs pretty fast when you don't keep up with minimum payments. If you have to choose between racking up late fees on your accounts or making a retirement contribution, go ahead and pay the credit card bills -- but only after you've talked to your creditors about your situation. Several financial institutions have already announced debt relief programs for those affected by the coronavirus. Temporary payment deferrals and fee waivers may be enough to get you through this crisis without changing your contributions.

3. Your employer suspended matching contributions

One of the features that makes 401(k) saving so attractive is the employer-match contribution. Matching contributions are free money, after all, and they expedite your savings momentum. If you shut off your contributions entirely, you give up those free deposits as well as your own. It's challenging to recover from that. When you do start contributing again, you'd have to increase your contribution rate substantially to make up for lost ground.

If your employer isn't matching, it's less expensive to redirect funds temporarily from your 401(k). If you're using that to reduce debt on high-interest credit cards or to pay essential bills, that's fine. But otherwise, try to avoid using the loss of an employer match as an excuse to pause contributions without any clear better use for the money.

4. You might lose your job entirely

Rumors of layoffs shouldn't prompt you to ditch your 401(k) contributions immediately. The exception is when you have zero emergency fund savings. Skipping contributions for a few paychecks helps you pad your cash reserves. It's a reasonable strategy if you realistically think you might lose your job.

Make a note in your calendar to reevaluate your situation monthly. What you don't want to do is reduce your retirement contributions, build an emergency fund, and then spend the money when the world returns to normal. As long as your income remains intact, keep growing that emergency fund and then restore your 401(k) contributions as soon as the layoff scare is over. Going forward, continue building your cash reserves so you don't have to make this decision again.

Pause contributions only in an emergency

The conventional advice around retirement savings is to treat your 401(k) contributions as non-negotiable expenses. Unfortunately, these are unprecedented times that may call for a new set of rules. If you're in a bind and there's no other way out, a short-term pause of your contributions could be the right move. You can keep it from destroying your retirement prospects by doubling down on your contributions once the economy's in recovery mode.