For about a year, Shane’s Roth 401k contributions were at about 9%. Not enough. His company halted their generous 100% match (up to 6% of his salary) so when it was in place, that was technically about 15% of his gross pay going toward retirement.
Because of the recession, the company not only got rid of the 401k match, but they also suspended bonuses and cost of living raises. Yuck.
But the economy seems to be turning around! Shane had wonderful news last week. He got a raise! He really deserves that.
In addition, the cost of living raise (usually around 2%) will return later in the year. They are also bringing back the 401k match. This time, it will be a 50% match up to 6% of his salary. Better than nothing, right?
I started to get really excited thinking about what we could do with his raise. We could speed up our savings goals, which are currently trudging along at a snail’s pace. Right now, we’re saving for a second vehicle and after that is set, we’ll be saving for a down payment on a house.
But then I started to think about our long-term financial goals.
We knew we had to increase our 401k contributions to at least 15%, and the sooner the better to take advantage of the 34 years or so it’ll take until we see it again.
So, we’re doing that now with his raise, and bumping it up to 15%.
That means that we probably won’t have a higher net paycheck. In fact, it might be $20-30 less per month, which is ok.
We reasoned that we wouldn’t miss the money now (since it was money we didn’t have before anyway) and that hopefully it will have plenty of time to grow and do us a lot of good on down the road — more good there than it would do in our savings accounts.
Once we get into a house, we’ll probably start nudging up the retirement contributions until we’ve hit the maximum amount per year of $15,000. That will probably take awhile!
As I mentioned earlier, we had used the company’s 6% match to put us at our target 15% contribution. We saw how that can go away without much warning. We think it’s probably better for us to put 15% of our money toward retirement on our own, and to treat company matches as just a nice bonus.
It’s not as fun putting all that money toward retirement. I think we’ll be happy we did it, though. And since we’re now at that 15% mark, all future raises will then increase his take-home pay. It’s easier to get used to living on a little less right now than trying to make those adjustments on down the road.