You'll often hear that if you want to retire comfortably, it's important to save for that milestone consistently. But what happens when a pandemic erupts and wrecks your plans?

Right now, a lot of people are struggling with income loss or income insecurity due to COVID-19. And with unemployment levels at a record high, it's safe to say that our country's economy recovery could be long and drawn-out. It therefore begs the question: Should you cut back on retirement plan contributions to focus on your immediate needs? Or should you keep pumping money into your IRA or 401(k)?

Man at laptop holding a pen


The upside of funding your retirement plan today

Right now, contributing to a retirement plan just isn't an option for everyone. But if it's a possibility for you, it pays to keep at it.

First of all, stock values plummeted in March, and while the market has recovered some of its value since then, it's still possible to load up on quality long-term investments on the cheap. Prior to the pandemic, stocks were largely overvalued, making them harder to buy.

Secondly, there are tax incentives associated with saving in an IRA or 401(k). If you fund a traditional retirement plan this year, you'll lower your 2020 tax bill, and that's a good thing to do at a time when money may be tight. Even if you opt for a Roth IRA or 401(k) instead, you'll still reap the benefit of tax-free growth on your money, with tax-free withdrawals waiting for you during retirement.

Finally, the more time you give your retirement savings to grow, the more wealth you stand to accumulate. Say your normally put $300 a month into a retirement plan. You may be inclined to pause those contributions while you ride out the crisis. But if you skip a year's worth of contributions, you're 25 years away from retirement, and your IRA or 401(k) delivers an average annual 7% return on investment (which is lower than the stock market's average), you won't just be shy $3,600 as a senior; you'll be short more like $19,000.

But you may need to stop funding your retirement plan for one big reason

Clearly, it pays to keep putting money into your IRA or 401(k) if you have the ability to do so. But here's one good reason to stop making those contributions: You're short on emergency savings.

Under normal circumstances, it's smart to have between three and six months' worth of living expenses tucked away in the bank. But because the pandemic is causing widespread unemployment, it pays to aim for the higher end of that range. If you're nowhere close, don't put another dime into your retirement plan until you're set on emergency savings. Though it's wise to stay on track with your IRA or 401(k), your immediate financial needs should take precedence over your long-term needs and goals.

Many Americans are cutting back on retirement plan contributions as COVID-19 continues to batter the economy. There are plenty of good reasons to keep funding your account, but make sure you're set on near-term savings before going that route.