Reducing 401K contribution?
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| Wed, 03-04-2009 - 8:55am |
Good morning, As I posted last week we found out my husband's employer is cutting everyone's pay on a sliding scale. My husband's pay will be cut by 8 percent. That is addition to also making people pay more for benefits, less expenses reimbursement, no more 401K match PLUS seven days of unpaid furlough. I am scrambling trying to figure out how to make this up.
I was wondering about reducing his contribution to his 401K. He puts in 3 percent of his paycheck each pay period. The company used to match that by 1.5 percent so it was a total of 4 percent. I was thinking of dropping his contribution (at least temporarily) to 1 percent. That would keep the account open but frankly we are losing money in the fund anyway with the stock market so low. That would boost his take home pay a little and I guess there will be a tiny bump each check from the stimulus ($13?) plan. When open enrollment comes he will change insurance to an HMO so we can save a couple hundred a month. He is thinking of dropping his union dues but that makes me worried. The company seems to be targeting non union members for layoffs. He thinks he would still be protected and retain his seniority but he's not sure.
What do you think?
Jenny

My husband works in finance and actually increased our contributions for this year.
When you go through the babysteps of Dave Ramsey, in Financial Peace University, they do say to put your 401k on hold until babystep 3 or so.
Hi Jenny,
I should preface that I have never had an opportunity to participate in a 401K plan.
Thanks for the replies. This is only meant to be temporary, esp. until we can change our insurance. We are also going to try to refinance our house either on our own or through the new program released today. If that does not work we will probably put our house on the market. We have already tightened our expenses and are looking for ways to save money. Actually we pay all of our bills and then some every month but it is tight and about to get tighter so I was looking for some temporary breathing room.
I am a huge proponent of saving for retirement. I get that. No need to scold. I was surprised my husband's contribution was as low as it was. Mine used to be closer to 10 percent plus the company match. But once I was laid off there was no more match and my fund has just been dropping like crazy. It didn't have much in it since I was told for many years I wasn't eligible even though I was.
Right now we have 3 401K accounts, about 100K in equity in our house and about 12K in savings which I guess would be our emergency fund. When I get freelance work it goes into savings and I draw down as needed. I haven't drawn from it in two months. We have about $50K in non secured debt which I am paying off on a Quicken repayment schedule. I actually wiped out three bills this month alone.
I fully intend to replace his contribution and even increase it in the future but right now the "rules" of investment need to take a back seat as we are reeling from the thought of an 8 percent pay cut.
Since this is a temporary fix to replace a drop in income, I would say do whatever you need to do to make it through the shortterm.