Should I Pause My Retirement Contributions to Rebuild My Emergency Fund as a Self-Employed Musician?

A Reddit user who works as a self-employed musician is facing a dilemma right now.

As the poster explained, his annual revenue is $120,000 per year, and he pays himself a salary of between $60,000 and $80,000. He has no employer matching contributions to any retirement accounts as a result of working for himself, and he invests around $893 per month for his retirement spread across 401(k) and Roth IRA contributions.

Unfortunately, his business is slow at the moment, and he has spent down his emergency fund, leaving him with just $1,000 to protect himself in case of a rainy day. The original poster (OP) said he believes this has put him into “emergency mode,” right now and that his best and only course of action is to immediately stop retirement investing until he has managed to rebuild his savings.

So, is the poster right? Should he discontinue his retirement contributions until his emergency fund has been built back up? 

Pausing retirement plan contributions may be the way to go

Most Reddit users were very clear in replying to the original poster’s comments about what to do next. Most said that the best thing to do would be to either stop retirement account contributions entirely or seriously limit them until the emergency fund has been restored.

One user said that this was the best course of action because it would be hard to focus on working if the OP was worried about being unprepared for emergencies. Another pointed out that if the OP didn’t rebuild his savings and experienced another emergency, he’d probably end up either:

• In debt, which would affect retirement account contributions even more adversely in the future, because some of his income would be going to debt payments and interest
• Borrowing from or making an early withdrawal from retirement accounts, which could come with added penalties and fees

Since the OP would simply be too vulnerable to life’s uncertainties — especially given his self-employed status — replenishing the emergency fund would likely be the top priority.

That answer would be different if the OP earned employer matching contributions, as the OP would be passing up that free money if he didn’t invest in his 401(k) in that case. But, since the OP is self-employed and said no employer match exists, the downsides of going with no emergency fund are greater than the downsides of pausing retirement investments until the emergency money is back in place in a high-yield savings account. 

Getting professional help could allow the Redditor to make the best choice

Although many people on Reddit shared the same opinion, the OP may still want to talk to a financial advisor before making his decision.

This might be the way to go here since the OP is facing a tough choice. Financial advisors work with clients to look at the big picture, define financial priorities, and make the right long-term decisions in situations like this.

With help from a licensed financial professional, the Reddit poster here could decide exactly what the best ways to divide up his money are so he ends up in the best possible position in the long run.

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