Feb 24 2009

Lost the 401k match — now what?

I guess it was inevitable, given the economy. As of March, Shane’s company will no longer offer a match on his Roth 401k contributions.

First, I’m grateful that he had a good match in the first place. I know that many people have jobs without retirement benefits. And, there are people who are struggling to find a good job. So I don’t want to sound like I’m complaining.

What will this mean for our finances?

Well, right now, we’ve been contributing about 9 percent of his gross salary to a 401k. The 6 percent company match gave us 15 percent total, which is the often-cited rule-of-thumb target. Whether that is too much or too little, I don’t know at this point.

I don’t think we’ll be changing our contributions right now.

If you follow Dave Ramsey, he says to hold off on investing for retirement until your debts are paid and you have an emergency fund. I’m not certain, but I think he means to wait even if you have a company match.

Personally, I think that if your company is going to give you free money, you should at least take some of it.

We’re on baby step 2 (pay off all debts) but we already have baby step 3 (3-6 months emergency fund) completed.

Scenario 1:

We’re still on target for paying off our car debt by the end of 2009. If we…

  • Stopped saving for retirement and put that money to the car loan
  • Contributed no other funds to the car
  • Paid $1,662 as our last payment (this figure equals six months worth of car payments in our emergency fund)

We would have the car paid off in September, and would save $704 in loan interest.

Scenario 2:

We could…

  • Put our retirement contributions
  • Our budgeted $277 minimum extra payment (it equals a double-payment), and any additional funds each month toward the principal. Let’s say we come up with $100 extra each month.
  • $1,662 toward our last payment

If we do that, we’d have it paid off by July and save $743 in loan interest.

Scenario 3:

We could continue as we are, which is putting at least $277 extra per month toward the loan, and any extra funds we can scrape up. Assuming we only can do the double payment and the $1,662 at the end, we would still have it paid off in October, with a total savings of $685.

So, at best, halting our retirement contributions could save maybe $58 in interest and get us out of debt maybe three months earlier. Eh, that doesn’t sound that amazing.

By comparison, if we make 5 months’ worth of retirement contributions, assuming 8 percent annual growth, at retirement we’d have between $20k and $40k (depending on when we withdraw the funds.

To me, it makes much more sense to keep on saving for retirement during these months instead of getting out of debt a few months sooner.

10 Responses to “Lost the 401k match — now what?”

  1. Lots of companies are suspending the 401K matching. It stinks. But you’re right. At least you’ve got benefits.

  2. What a bummer to lose the 401K match. My Hubby’s pay, along with all of his coworkers’, was cut by 5% about a month ago. Next to go is the 401K match. It really hurts when the cost of everything keeps going up, but what you earn keeps going down.

    And of course, I’m not complaining too much because I feel fortunate that atleast he still has his job and it’s pretty secure.

  3. That stinks that you lost the company match. I do think you are on the right track… keep putting money into the retirement fund… it’s got nowhere to go but up… and the debt pay-off will come sooner than you think!

  4. I’d have to say I agree with you on that one.

  5. I would actually put the extra $277 toward retirement savings (to make up for the cut by the company) but your plan is fine. I would strongly consider look to add to your retirement contributions once the car loan is paid off.

    Curious Cat Investing Blog’s last blog post..Jumbo Loan Defaults Rise at Fast Pace

  6. So sorry to hear about your husband losing that match. It struck me as I was writing and reading about this, that you might set a goal for yourself to earn that match through how you monetize this blog! That would be a wonderful thing to read about down the line :)

    Steve’s last blog post..Break Up With Lack! Making Money During a Depression

  7. Sorry to hear about losing the match. Yes you’ve got a job and benefits in this economy but you’ve worked hard to get what you’ve got and have been responsible with your finances, you’ve got a right to be upset.

  8. I’m sorry to hear you lost that, it is such an important part of savings for the future. The others are right though in having you look in other locations for savings or income. I’ve been doing the same. Lately, I’ve been looking for banks that pay higher percentage rewards on checking accounts, a lot of my friends use it and have loved it. I found this tool helpful for me on CheckingFinder.com They have a list of banks offering up to 6% in reward checking accounts just to use the debit card, online banking, or use direct deposit

    I’ll pass it on:

    Bank Rates:

    First Robinson Savings Bank – Robinson, IL
    Southern Missouri Bank & Trust
    Bank of Ripley – Ripley, TN
    Communication Federal Credit Union – OK
    LA DOTD Federal Credit Union – Denham Spring, LA
    Keystone Bank – Auburn, AL
    Connexus Credit Union – Wausau, WI
    Altra Federal Credit Union
    Farmers and Merchants – Nashville, IL
    Community State Bank – Poteau, OK
    First State Bank – Kansas City, KS
    State Employees Credit Union – Santa Fe, NM
    Grand Bank of Texas – Grand Prairie, TX
    Harbor Credit Union – Green Bay, WI
    Malvern Federal Savings Bank – Paoli, PA
    Union State Bank – Everest, KS
    United National Bank – Cairo, GA
    First Banking Center – Lake Geneva, WI
    Noble Bank & Trust – Anniston, AL
    The Community Bank – Brockton, MA
    Bank of Little Rock – Little Rock, AR
    Community Bank of Pleasant Hill – Pleasant Hill, MO
    Community Bank of Raymore – Raymore, MO
    Olmsted National Bank – Rochester, MN
    Royal Banks of Missouri – St. Louis, MO
    Texas Citizens Bank – Pasadena, TX
    Courtesy of BancVue.

    Hopefully this helps!

  9. Dave would say to do roths now, if no match. He also would not have you saving for retirement with the car loan. Dave says that personal finance is more behavior than math so getting the “satisfaction” of paying off the car loan is motivating to most people. However, I think you guys have a good handle on your finances and do not necessarily need the “motivation” to keep winning with money.

  10. My husband’s 401k is actually a Roth 401k. We’re planning on opening IRAs soon.

    I totally agree with you that a lot of getting out of debt is more behavior-related.

    I agree with your assessment — we’re totally motivated to get this last debt paid and getting on with our lives! It will be soon.

Sorry, comments for this entry are closed at this time.

Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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