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.
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.
- 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.
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.