Wealth Insights

Saving for retirement: Covering gaps in your planning

Whether you stay in the workforce or take a hiatus, you may be able to continue saving for retirement.

Taking a hiatus from the workforce whether to raise children, care for an elderly parent, or other personal reasons doesn’t mean you should take a break from retirement planning. While retirement funds aren’t automatically deducted from a regular paycheck, you’ll want to try to avoid having a gap in your retirement funding. As long as it is financially possible, it is important to continue contributing even during a hiatus.

“Opting to take time out of the workforce to raise a family does not preclude you from saving for retirement,” says Hanni K. von Metzger, Senior Vice President and Trust Advisor at Regions Private Wealth Management. “If you are outside of the full-time workforce for an extended period it’s important to keep squirreling money away, if possible, in either a taxable savings or investment account or a tax-deferred retirement account. A large gap in funding can potentially have a big impact on your overall retirement picture. Even if you stop working for a brief period, it can be challenging to make up for the lost retirement dollars.”

Saving for retirement: First things first

If you are planning to take a hiatus from the workforce, it is important to plan accordingly. Here are a few considerations:

1. Income replacement

   If you are married, is your partner’s income enough to sustain your family’s lifestyle? If you are single, how will you replace your paycheck? These financial reserves or sources may or may not last as long as you might think. Do you have adequate savings in the form of cash reserves or an emergency fund? What about your retirement accounts including 401(k) or IRA, and are you familiar with the associated age-based withdrawal rules?

   Do you have a source of passive income by way of investments, rental income, or dividends? Do you have access to any other sources of income such as spouse income, side jobs , or severance? It is imperative to determine how much you need monthly, and where it will come from.

2. Expenses and budget

   Can you afford to step away from your career to care for children or elderly family members? Understanding your spending is critical and needs to include a good look at fixed costs such as housing, utilities, and insurance; variable costs such as food, travel, and entertainment, and one-time or irregular expenses such as repairs or medical bills. You’ll want to create a realistic budget to forecast how long your money may last.

3. Healthcare considerations

   One of the biggest gaps when leaving the workforce often comes down to health insurance and the cost of healthcare. When you leave a job, you also potentially leave the comfort of an employer-sponsored health plan, unless you are married and your spouse has available coverage. There are other options such as COBRA and marketplace plans, but they can be costly. You’ll want to budget for any out-of-pocket costs and long-term care considerations as you prepare for your hiatus or departure from the workforce.

4. Tax implications

   Your tax situation may change significantly, so there are definitely a few things to understand before stepping back. A change in income level may put you in a new tax bracket, retirement account withdrawals may be taxable, and you may incur penalties if you are taking withdrawals before age 59½. You’ll want to review your withdrawal strategies to potentially minimize taxes.

5. Retirement planning impact

   If you’re stepping away early, think about what you could be missing out on. Start by asking yourself a few questions. You may need to adjust your investment strategy or timeline accordingly.:

   • Are you delaying Social Security benefits?
   • Will your retirement savings last?
   • Are you still contributing to retirement accounts?

Saving for retirement: After job loss

Leaving the workforce isn’t always voluntary, but you may be able to take steps to hedge against the unknown with proper preparation. If you find yourself in a situation where you lose a job, you may still have an opportunity to contribute to your retirement outside of your company retirement plan.

“It is important to have six months’ salary stashed away in an emergency fund to address unexpected expenses, but it can also serve as a financial floatation device in the wake of job loss,” says von Metzger. “In some circumstances individuals may be heavily invested in illiquid assets, but regardless of your overall financial picture, it is important to maintain enough liquidity – or accessible cash – to weather unexpected financial storms.”

Saving for retirement: Make the most of retirement planning

Whether you take a short- or long-term hiatus from a full-time career, von Metzger suggests keeping these points in mind:

• Pay yourself first. From the time you start working, set aside up to 20 percent of your salary for retirement savings. Remember to pay yourself first before paying anyone else. A wealth advisor can help ensure a diverse mixture of stocks and bonds to match your risk tolerance with your life goals.

  “I would recommend setting aside at least 10 to 15 percent if possible.” Notes von Metzger. “If you are planning to leave the workforce for a period of time, fully funding your retirement account leading up to that departure could make a notable difference in the long-term growth.”

  For married individuals, your spouse’s income level may qualify you to continue to fund your retirement via a Spousal IRA while you are not working. It is important to note that according to the IRS, Traditional IRA contributions have no income limits, but you do have to have earned income and there are limits on deductibility. For Roth IRA contributions, those begin to phase out if Modified Adjusted Gross Income (MAGI) exceeds $153,000 (single) or $242,000 (married) and are not available once you reach $168,000 (single) or $252,000 (married). However, it is important to note that the working spouse must have enough earned income to cover both contributions.

• Plan for the retirement you want. Create a retirement plan and determine how much money you will need to support the lifestyle you’d like to achieve in retirement.

• Carefully consider a professional hiatus. Think about timing if you plan to take a hiatus from full-time employment. The older you are, the longer it may take for your investments to appreciate through reinvesting and existing capital.

• Continue to contribute. If you opt to leave the workforce, continue contributing to retirement plans, including individual retirement accounts. In 2026 the IRA contribution limit is $7,500, and those 50 or older can make an extra $8,000 catch-up contribution. Those aged 60–63 may qualify for an even higher "super" catch-up of $11,250.

• Stay focused. Stay the course when investing. Work hard to keep emotions out of your portfolio decisions, especially during volatile markets. Working with a wealth advisor may help allay fears in down markets and help ensure that your portfolio is diversified and balanced.

• Find an advisor if you don’t already have one and meet with them regularly. Meeting with your advisor on a quarterly, semiannual, or annual basis could help you identify any gaps you may be experiencing in saving for retirement and discuss steps to potentially narrow that gap.

• Stay up-to-date. If you take a hiatus, whether voluntary or otherwise, you will likely eventually need to prepare for rejoining the workforce. Make networking a priority, so that when you look for a job you have contacts who may provide assistance or job leads. Consider whether you will return to your original career or head in a new direction. Whatever the case, stay technology savvy, and focus on the skills you’ll need for jobs you want to pursue when you restart your career.

Prioritizing your own needs over the needs of others isn’t always easy, but in the case of a healthy retirement, it’s necessary.