Patching up shortfalls can mean postponing retirement savings
December 27th, 2008 | by mbhunter |This Michelle Singletary column on the Washington Post website has answers to a few readers’ questions regarding debt and debt reduction. The first question outlines a situation that stings a bit. Here’s a summary:
- Husband has less construction work coming in; takes lesser-paying jobs to bring in something.
- Couple cuts budget but is still short $250/month, which is depleting their savings.
- She contributes to her 401(k) only enough to get match from employer.
- Question: Give up the free money to shore up the shortfall?
Ms. Singletary’s answer is yes, do this until the employment situation improves, even though it hurts to give up the free money.
I have to agree with this. I’d go for one more round of cost-cutting before throwing in the towel, or cut as much as I could but just reduce my contribution so that I’d still get some of the match, but yeah, money more or less locked away in a 401(k) doesn’t do much good when the credit card balances start going up.
I think this would especially hurt someone who had been doing the right thing and taking advantage of matching money from their employer. Plenty of people just let this money float right by them down the drain each and every paycheck. (Just to set the record straight: I’m not completely sold on maxing out 401(k) contributions, but getting as much as you can out of your employer in matching money is usually a good idea.)
Keeping your income streams flowing is key, just as doing little money-saving things. Investing should be used with excess funds, and if there are no excess funds, then there should be no investing, for retirement or otherwise. And if there’s debt to be reduced, then this is even a stronger reason for not investing.
2 Responses to “Patching up shortfalls can mean postponing retirement savings”
By Rich on Dec 27, 2008 | Reply
Giving up an employer match would be extremely hard for me to do. But there is a psychological thing about seeing your credit card balance go up, especially if you’ve been working your tail off to make it go down.
I think I would do everything in my power to save $250 a month before I cut my contributions below the match rate though.
By Mr. ToughMoneyLove on Dec 27, 2008 | Reply
I read the Post article as well. I found myself asking “where are the budget details?” Too many people write and ask for advice, saying that they have cut everything to the bone and therefore need to do something radical, such as stopping 401k contributions. Upon further examination, we learn of multiple car payments, cable TV and cell plans, $600 food budgets, ballet lessons, etc. So when I see these questions, I remain skeptical until I see the budget details.