Author Topic: Cut back 401k savings to pay bills??  (Read 2360 times)

albireo13

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Cut back 401k savings to pay bills??
« on: May 16, 2016, 03:51:24 AM »
We just sold our bigass house and are buying a smaller house.
Bad news is it is a lateral move in terms of house cost.
Good news ... Much smaller, more modern, energy efficient, nicer town, lower taxes, lower upkeep.
The problem is with all the costs associated with buying a new house (closing, moving, cleaning, etc)
our mortgage is actually bumping up.  Plus, my car is going down the tubes fast and I need to replace it ASAP.  : (
This is the first year I had dialed up our 401k savings to the max.  I am thinking of backing this way down to the minimum that still gets company match, to help pay off all these expenses.

Is this the right thing to do?

I know that this move is the right thing, for the long haul.
Still, I think it pushes out my retirement a few years more.

Apocalyptica602

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Re: Cut back 401k savings to pay bills??
« Reply #1 on: May 16, 2016, 07:01:13 AM »
I struggle with this, I've had a few moments where I've considered backing off the 'pay yourself first'. (My wife and I both max our 401ks and IRAs so 18k + 18k + 5.5k + 5.5k) but have managed to hold strong each time these feelings came up over the past few years.

Not mincing words, your current self is robbing your future self if you do this, both in less retirement savings and additional taxes paid. I'd follow these steps.

  • Is there anything you can do to cut expenses further than the equivalent dialing back of expenses?
  • Even if you can't make up the entire difference, the fact that you feel you need more money means you need to go back and take another hard look at your budget and re-evaluate for extra savings to minimize how much you're robbing your future self..
  • Other thing to consider is, if you MUST do this. Set yourself a deadline to get back to a baseline level of expenses and no matter what turn your 401k back to maximum. If you have discipline here it will force you to tighten your belt.

The absolute WORST thing you can do is dial back your 401k contributions and inflate your lifestyle by getting used to all the 'extra' pocket money. You might not intend to do this but it's an easy trap to fall into "Oh our new home is smaller so it wouldn't be all that bad to refurnish!" "We've had our old cars for so long they're about to die, lets get a newer one. We're strapped for cash due to the closing so lets just finance, its 0%!" etc.

Retire-Canada

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Re: Cut back 401k savings to pay bills??
« Reply #2 on: May 16, 2016, 07:36:30 AM »
Is this the right thing to do?

It sounds like you are surprised by all teh extra costs. If so that's something you should have had a plan for before you signed a sales contract on a new home...not something to figure out afterwards. Before you signed you could have made a different choice to mitigate these costs....now you you have to react.

If your mortgage rate is reasonable...please tell us it is...then let the mortgage grow. A reasonably low interest rate and inflation will make that less painful than not saving/investing money for retirement. And as A602 alludes to holding strong on the savings/investing front is a lesson it sounds like you need to learn.

So how much $$ is left that you need to deal with that you can't put on your mortgage?

How big is your emergency fund/LOC or whatever you use to deal with unexpected expenses that crop up?

How much do you have left each month after your 401K and all your bills?


boarder42

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Re: Cut back 401k savings to pay bills??
« Reply #3 on: May 16, 2016, 07:57:10 AM »
i just moved homes.  i temporarily backed down my 401k contributions to the minimum.  but after the move we bumped everything back up so it would still max out this year.  is that something you could do? or would you actually do it if you bumped it down.  those are questions you need to ask yourself.

ReadySetMillionaire

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Re: Cut back 401k savings to pay bills??
« Reply #4 on: May 16, 2016, 08:03:29 AM »
I struggle with this, I've had a few moments where I've considered backing off the 'pay yourself first'. (My wife and I both max our 401ks and IRAs so 18k + 18k + 5.5k + 5.5k) but have managed to hold strong each time these feelings came up over the past few years.

Not mincing words, your current self is robbing your future self if you do this, both in less retirement savings and additional taxes paid. I'd follow these steps.

  • Is there anything you can do to cut expenses further than the equivalent dialing back of expenses?
  • Even if you can't make up the entire difference, the fact that you feel you need more money means you need to go back and take another hard look at your budget and re-evaluate for extra savings to minimize how much you're robbing your future self..
  • Other thing to consider is, if you MUST do this. Set yourself a deadline to get back to a baseline level of expenses and no matter what turn your 401k back to maximum. If you have discipline here it will force you to tighten your belt.

The absolute WORST thing you can do is dial back your 401k contributions and inflate your lifestyle by getting used to all the 'extra' pocket money. You might not intend to do this but it's an easy trap to fall into "Oh our new home is smaller so it wouldn't be all that bad to refurnish!" "We've had our old cars for so long they're about to die, lets get a newer one. We're strapped for cash due to the closing so lets just finance, its 0%!" etc.

Great advice here, and I wanted to emphasize the part that I underlined.

My fiance and I just moved into our house last winter. I had every intent to max my 401k this year and was doing it through April. And then we needed to buy furniture. And then buy a lawnmower. And then a weed wacker. Etc. We budgeted for this, but things just constantly add up.

And then we also had a couple expensive trips. My law school roommate (will be in my wedding) is having his bachelor party in Charleston this very week and then his wedding is out of town in June. And then my undergrad roommate (another guy that will be in my wedding) is having his wedding in Montana. I'm in both of their weddings, so all in all everything is going to cost like $2,500.

Oh, and my fiance and I just got engaged in February. We've been paying for wedding stuff too ($1,300 to rent a venue, $500 deposit for photographer, $500 for DJ, etc.).

I held my guns on my 401k max until April. I've dialed it back from $710 per paycheck (max) to $295 per paycheck.  This keeps me on track to save at minimum $10,000 this year. This was only to temporarily calm my nerves a bit so I can afford everything throughout this summer. I think this has been good for my mental well being, because barely scraping by (and actually being slightly negative one month) was causing a ton of stress.

Once this summer is done and I rehabilitate my checking account to have four months of expenses, then I'm going to up my 401k to $800/paycheck and hopefully get at least $15,000 in my 401k this year. I might do even more (even try to get up to the max) if my trips cost less than anticipated.

So my recommendation is ultimately the same as above: make sure this is just a "one off" and you aren't doing anything that leads to increased fixed costs. As as you can go back to maxing, do it.

catccc

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Re: Cut back 401k savings to pay bills??
« Reply #5 on: May 17, 2016, 10:05:00 AM »
don't forget that dialing back your 401K is going to increase your taxes...  So you might be putting $100 less into your 401K, and only getting an extra $70 of cash to actually use.  I say don't do it, continue maxing it out and find other ways to cut back or delay expenses.

Tjat

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Re: Cut back 401k savings to pay bills??
« Reply #6 on: May 17, 2016, 12:10:09 PM »
The problem is with all the costs associated with buying a new house (closing, moving, cleaning, etc)
our mortgage is actually bumping up.

Can you elaborate? Your house value is equivalent costs, so how does closing, moving and cleaning translate to higher mortgage payments? Are you rolling all these costs into your balance somehow?