Need Financial Advice-401K/Pay reduction question

[Luv2trav]

My company annouced that we all have to take a 5% permenant pay reduction effective Jan. In addition they are suspending company 401K match (3%) for our 401K for 2009. They hope to reinstate the match in 2010 but no promises. I currently contribute 10 or 11%(Not sure at this time). I have always maxed out to where our company would match which is at 7% to get the company match. Over the years I would increase by 1-2 percent when I received merit increase. Just like everyone else my 401K is losing money. I really didn't mind losing the money the last couple quarters because I felt I was only losing my company match or free money so to speak...

My question is should I leave my 401K alone? My 5% pay reduction I can absorb. It really isn't going to make much of a difference in our budget. However the thought of losing my own money now annoys me..

I am not real knowledgable when it come to 401K. I just have it deducted and let the experts do their thing.

What should I do? Decrease my contribution until next year? or leave it alone?

 

[TifffanyD]

Don't decrease! Increase if you can to make up for it. Right now you are getting bargain rates on stocks that should pick up eventually

I'm not a financial guru but I read CNN money and it seems to be the common thought, and makes sense to me

 

[asmit4]

I'd stick it out-provided you are under 55. Think of it this way- stocks used to be 20 bucks- so with 100 bucks you would get 5. Now they are 5 bucks- so you get 20.

Sure- you are losing $$, as everyone else is, but buying low and selling high is the way to go and we are about as low as we can go

 

[kwhite1022]

Also, remember its an unrealized loss till you actually with draw the funds. I dont know that I would increase (when you are already taking a 5% reduct in pay) but IMO id keep it where you are at.

 

[Luv2trav]

I'm only 37.. Long way from retirement... I'm not sure I can increase at this time.

Thanks for the advice. We will leave it alone.

 

[aurorafan]

My DH works for a financial firm (in IT) and his boss actually wrote a book on 401k's and is the guy in charge of the company's program. He said to leave it alone for the same reason stated above--you're buying more stock now than you were before, so when things rebound you'll end up with more money .

 

[Jeanne B]

Do you have a Safe Harbor 401(k)? I'm not entirely familiar with it but with a safe harbor plan I don't believe your company can legally stop the matching contribution due to a financial situation and if they do, I think they have to give employees at least 30 days notice and I believe they have to go through an audit of some sort.

I'm guessing you don't have this type of 401(k) plan but just thought I'd throw it out there.

 

[Luv2trav]

Do you have a Safe Harbor 401(k)? I'm not entirely familiar with it but with a safe harbor plan I don't believe your company can legally stop the matching contribution due to a financial situation and if they do, I think they have to give employees at least 30 days notice and I believe they have to go through an audit of some sort.

I'm guessing you don't have this type of 401(k) plan but just thought I'd throw it out there.

I am not sure. I work for a one of the largest companies in the U.S so I assume they know the laws.. Plus our 401K does not go into effect until Feb which could be the 30 days notice.. Our salaries cuts goes into effect in Jan.

 

[etraible]

I vote for you not reducing your contribution. It's very easy to start spending that money and you'll regret it later. Our 401K offers a "money market account", whereby we only make about 2% but we haven't lost any money either. We've been keeping our money there for the time being. If yours doesn't, check into opening your own IRA, you could put your money in there instead of the 401K since you're not getting a match anymore.

 

[CarolA]

LEAVE IT ALONE! IF you touch it it's going to cost you a lot.

And if you can afford it keep the contribution. Even if you decrease the contribution your income won't go up by the same amount. Remember the 401K money was not taxed. Money you take home is....

 

[eliza61]

I would still keep contributing. Remember the stocks you buy now you are buying dirt cheap. At your age, with 20 years before you retire you can really sock away alot of stocks that will definitely go up.

 

[Luv2trav]

LEAVE IT ALONE! IF you touch it it's going to cost you a lot.

....

I'm not taking it out.. Just questioning on reducing my contributions. I have no intentions on removing any money...

 

[Compte de Yoyo]

Are you able to choose your stocks? It might feel better to rebalance to a percentage that's a little less aggressive.

 

[The Disney Bunch]

Leave it - history shows that these things are pendulumns & it will increase again - don't stop the contributions - it will even out in the end. It may not feel like it but it will.

 

[PatsMom]

Even if the limit of your risk tolerance has been reached by this market, I'd suggest leaving your 401(k) contributions where they are if you can. You don't necessarily have to but more equity positions - if you can't stand the volatility you could leave what you have in equities alone to hopefully participate in a market recovery and allocate new contributions to a safer investment. Most large 401(k) plans have a decent stable value investment choice. If you are only 35, you still have plenty of time for your long term retirement investments to recover. However, if you are 100% equity, you might want to think about trimming back on your risk profile by allocating new investments to safe assets. I am one of the financial people who don't believe that anyone really should be 100% equity!

 

[sbell111]

As long as you are not getting close to retirement, this is a time to dup more money into your 401k, not less. When the market dropped, we trippled our investing to take advantage of the bargains. When the market rebounds in year or so, we will benefit greatly.

 

[Luv2trav]

Thanks for advice we are going to leave my contributions alone..

 

[MrsPete]

Believe me, I know where you're coming from! My salary's been cut once (not by much, but they increased health insurance at the same time), and they're about to do it a second time. The insult involved hurts me more than the actual money.

But as to your question: I'm with the others. Don't reduce. Look for small ways you can decrease your normal spending rather than take from your retirement. Bring snacks and sodas to work, skip a meal out, pare down your grocery bill. Okay, I'm hungry -- all my ideas are food related, but you get the idea.

 

[Golf4food]

If your company has cut their contribution and you do not already have a Roth IRA you may want to look at lowering your company 401K contribution and opening a Roth with a low cost firm such as Fidelity, etc. There are plenty of calculators out there that you can compare future savings by using a 401K vs. Roth IRA so you can enter your own personal information and see which works out best for you in the long run. Yes, you pay taxes on Roth contributions now (because it is an after tax instrument) but you pay no tax in the future and many people would come out better in the long run with a Roth vs a company 401K if they are not getting a good company match. Check it out for your own situation and see what might work best.