Author Topic: Gov't Shutdown - pause 401k contribution or use savings?  (Read 550 times)

Blonde Lawyer

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Gov't Shutdown - pause 401k contribution or use savings?
« on: January 23, 2019, 03:36:20 PM »
My husband is a federal employee.  We are hopeful that the government will re-open before his agency runs out of money but it doesn't look like it will.  We can just barely pay our necessities on my income alone.  I suspect we will be short a couple hundred per month.  I currently contribute $500 biweekly to my 401k.  I can pause that during the shutdown or reduce it, likely to half.  That would cover any gap from my husband's lost income.  Alternatively, we do have a fairly large savings account but we will likely need to use at least half of that money within the next year, reason not disclosed for the purpose of this exercise.  Under these facts, would you temporarily stop your 401k contributions to have a bit more wiggle room until the shutdown is over or use savings to cover the small amount that my income won't cover.  The latter assumes we spend on necessities only during this time and no luxuries.

dandarc

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #1 on: January 23, 2019, 03:39:14 PM »
I'd use the savings account first, and if/when it gets too low for your comfort, then adjust the 401K amount.

This is what an emergency fund is for - a temporary need for cash due to unforseen circumstances. You'll be able to replenish your savings quickly once your husband's back pay comes in.

Kahooli

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #2 on: January 23, 2019, 03:46:36 PM »
You can always increase your 401k contribution later in the year to catch back up. I agree with Dandarc though. You can pay yourself back in your savings too. Just be sure to do it.

sol

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #3 on: January 23, 2019, 04:10:14 PM »
I agree that you should use your savings account down to the level you expect to need.

If that turns out to be insufficient and you also need to reduce your 401k contributions, be mindful of any company matching funds and try to contribute at least enough to get all of that.  Like if you're currently contributing 20% of your pay to your 401k and they match the first 5%, then I would consider lowering my contribution down to 5%, but not any lower than that.  Those matching funds are instant 100% appreciation on your contribution, and are usually unrecoverable.  You may need to hit the matching amount with each and every paycheck.

maizeman

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #4 on: January 23, 2019, 04:13:01 PM »
I'd go the Kahooli route. As long as you make enough money that you could just make it up later in the year with higher 401k contributions and not permanently lose out on tax deferred space for 2019, I'd reduce contributions now so that you don't have to eat into your emergency cash buffer until you really need to.

the_fixer

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #5 on: January 23, 2019, 04:16:11 PM »
My wife is a federal employee on furlough and we  are treating it as a challenge, trying to not touch the emergency fund or stop my 401k contribution.

1. We are making an attempt to eat all of the food in our house

2. I have collected the spare change from around the house and we are using it as spending money

3. We gathered up all gift cards and have been using them where we can.

So far so good and I figure we can last about another 2 weeks on what we currently have.

That will make the back pay that much sweeter if we can pull it off.


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Blonde Lawyer

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #6 on: January 24, 2019, 07:43:18 AM »
@ the_fixer - it has been a good exercise in returning to a frugal lifestyle for sure.  We definitely had some lifestyle creep this past year and this made us much more aware of where we mindlessly spend some money.  There have been more than a few times since December that we have wanted to upgrade something in the house or eat somewhere fancy and we've said "after the shutdown."  It will be interesting to see how many of these things we still care about post shut-down.  Some of them are things we do eventually need but aren't urgent purchases. 

That said, it is causing me far more stress than I expected.  I am an extremely empathetic person.  I don't say that to brag, it is actually a bit of a curse.  I have friends that are in far worse positions than I, at no fault of their own, that are really really stressing during this shutdown and I'm honestly struggling with my sleep because of it. That's not the point of my post though and I very much appreciate the responses I got here. 

I like the idea of pausing the contribution but then the pay periods where my husband gets his back pay, putting my whole check into the 401k to make up for it.  We have a safe harbor so I don't have to contribute to get my 3%.  I didn't think of that.  And yes, we can rebuild savings from back pay too.

Thanks. 

i_have_so_much_to_learn

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #7 on: January 24, 2019, 09:51:02 AM »
I think it also depends on how many years you have to retirement.

Overall, I agree with the strategy of using savings, though. However, if retirement is say, a year away, I don't think it would really matter.

I'm very sorry to hear about the stress this is causing you. I sincerely hope that you are taking time for yourself!

Mississippi Mudstache

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #8 on: January 24, 2019, 10:04:49 AM »
Use savings. That's what they're there for. I'd be selling plasma before I paused my 401k contributions.

wenchsenior

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Re: Gov't Shutdown - pause 401k contribution or use savings?
« Reply #9 on: January 24, 2019, 10:08:30 AM »
@ the_fixer - it has been a good exercise in returning to a frugal lifestyle for sure.  We definitely had some lifestyle creep this past year and this made us much more aware of where we mindlessly spend some money.  There have been more than a few times since December that we have wanted to upgrade something in the house or eat somewhere fancy and we've said "after the shutdown."  It will be interesting to see how many of these things we still care about post shut-down.  Some of them are things we do eventually need but aren't urgent purchases. 

That said, it is causing me far more stress than I expected.  I am an extremely empathetic person.  I don't say that to brag, it is actually a bit of a curse.  I have friends that are in far worse positions than I, at no fault of their own, that are really really stressing during this shutdown and I'm honestly struggling with my sleep because of it. That's not the point of my post though and I very much appreciate the responses I got here. 

I like the idea of pausing the contribution but then the pay periods where my husband gets his back pay, putting my whole check into the 401k to make up for it.  We have a safe harbor so I don't have to contribute to get my 3%.  I didn't think of that.  And yes, we can rebuild savings from back pay too.

Thanks.

Yes, I'm quite anxious on behalf of friends and co-workers, as well. We are going to be ok for at least 3 months before this starts to become financially alarming for us, but after that it would rapidly become challenging (esp b/c we partly support parents).

But more immediately we have a lot of furloughed friends and colleagues that are just a few years into their careers, many with relatively new mortgages and very young kids, and in some cases with the furloughed fed being the only working parent.   I can't help worrying constantly about them. 

We are handling this by drawing down our emergency fund and suspending my retirement contributions.  After 3 months, we will have to consider beginning to cash out investments.