Saving for Retirement while doing Debt Reduction

Over on the MyTotalMoneyMakeover forums, we often get people who ask, “Does Dave Ramsey really say we should stop retirement contributions while doing the debt snowball?” The overwhelming majority of the responders will say that Dave does indeed say to stop saving for retirement while doing the debt reduction “baby step.” Some will even say that those of us who don’t stop retirement savings during the debt snowball aren’t doing thing’s “Dave’s way.”

I beg to differ. I definitely listen to the Dave Ramsey Show almost every day it is on, either streamed live on my computer (like right now), or in the car from the Nashville radio station with the static, or in the evening from the commercial-free podcasts as a MyTotalMoneyMakeover member. I haven’t heard a call that specifically asks this question, but I do have my copy of The Total Money Makeover (2003 edition) and here is exactly what Dave Ramsey says, starting at the bottom of page 128 and continuing on to page 129:

If you are going to be gazelle-intense and do everything in your power to become debt-free very quickly, then stop your retirement plan contributions, even if your company matches them. The power of focus and quick wins is more important in the long term to your Total Money Makeover than is the match. This is only for people who have already pulled out all the stops and are ready for “anything goes” to become debt-free quickly.

If you are radically gazelle-intense, the speed of your debt freedom will enable you to return to that 401k with the match in just a matter of months.

That is totally unabridged from the book. Notice he says this idea is ONLY FOR THE RADICALLY GAZELLE-INTENSE, not everyone!!! He also mentions returning to contributing to retirement in a matter of MONTHS…which means you would have to be able to fly through Baby Step 2 (Debt Reduction Snowball) and Baby Step 3 (Fully Funded Emergency Fund) in less than a year. He does not say for everyone to stop saving for retirement at all…only those who have both the means and the will to get to Baby Step 4 (Save for Retirement) in less than a year.

So before you stop your retirement savings, run the numbers.  Will it speed up your debt snowball fast enough to return to your retirement savings in less than a year?  If not, then lower your contribution to the company match (if available) and keep on saving for retirement!