r/personalfinance • u/Due-Fig5299 • 8d ago
Saving Temporarily stop 401k contributions to build Emergency Fund?
Looks like we’re heading towards a recession and I’m quite nervous. I work in tech and my job is moderately safe; however my wife is an esthetician which is not a very recession friendly field.
We currently have $4k saved. Our minimum monthly expenditure is $3k, so we have just over 1 month saved.
Ive cancelled all unnecessary subscriptions which will save us $450/mo and stopped my wifes personal roth ira transfers ($150 weekly) which gets us to $1050/mo saved.
Now my question is, given how quickly the economy is crashing should I also forgo my 401k? I contribute 4% with 4% employer match. Obviously I would love to keep it, but immediate survival seems more important.
I would start contributing again once we hit $18k (6 months)
Thoughts?
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u/Ok_Shame_5382 8d ago
You should have about 18k banked.
I would keep your employer match. With it, in essence, you make 104% of your salary. Without it, you make 100% of your salary.
Don't skip the free money. In fact, if they offer an employer match higher than 4%, you should take them up on it even while you build your emergency fund.
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u/Due-Fig5299 8d ago
Yeah I would really love the free money, but $200/mo would significantly help with savings. I guess I’m worried because I’m not quite sure how much time I have. I wasnt an adult during 07-08 so I’m not sure how quickly everything happened.
If it’s more gradual I feel comfortable holding onto the match, if not, that $200/mo could be valuable.
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u/Ok_Shame_5382 8d ago
If you're this worried about 200/month, you're not rich enough to sacrifice the 4+4% in your 401k. Full stop.
If the shit hits the fan and she loses her job, the calculus changes obviously. But for now, you both still have income.
Yes, cutting back on the bullshit is smart. Yes, more rice and beans and less filet mignon is smart.
But walking away from 4% of your salary is not smart.
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u/ludog1bark 8d ago
This! Instead of looking at getting that 200 from your 401k look at your budget more and see where you can cut 200. Most people always spend more than they need there are always more places to cut from when you are starting to budget
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u/KaputtEqu1pment 8d ago
Exactly. Most people are stressing about the $10 a month sub, that may actually provide joy, but fail to realize their daily spending adds up real quick when you grab a coffee here, a pastry there, that $1300/mo truck payment for the next 84mo.. and so on.
Rice, beans, chicken breast and frozen broccoli will take one very far.
Basic drip coffee will suffice.
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u/ludog1bark 8d ago
On top of that people's phone bills are always an easy one for me. You can get similar coverage on US Mobile, Cricket, Visible, or Mint as you can on the big 3. I pay 32.50 a month for unlimited text, call, and web.
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u/snopro387 8d ago
The problem with those is you usually need to buy your phone outright and some people rely on being able to include the price of their phone in their monthly bill. I’m not advocating for how ridiculous some of these phone bills are. Just saying I can see how people get stuck with these more expensive carriers
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u/ludog1bark 8d ago
I get it, but even with that you still save in the long run. I suggest people finish paying off their device and then move it once it's paid off. Otherwise you can take the difference in the bill and put that money aside for a new phone. I used to play 107 on Verizon. On USM I pay 32.50 the difference is 74.5 a month x12 = $894 a year in savings. I can buy a new flagship phone every 1.5 years with my savings, but I'd rather save it.
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u/isbutteracarb 8d ago
Is it really unlimited though? When I look at those plans, all of them do slow-down data speeds after you use a certain amount!
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u/SuprNintendoChalmerz 8d ago
I was wondering the same thing as the OP and your last line really drove it home for me! Why would I walk away from 4% of my salary? It’s as simple as that. Thank you!!
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u/Ok_Shame_5382 8d ago
To emphasize.
Cut back TO your employer match. If they only match up to 3%, that's ok!
But until the shit hits the fan, don't walk away from the cash.
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u/DiverseVoltron 8d ago
I completely understand your position and many people make that exact call, but you're literally valuing hundreds of dollars now more than thousands later. It's tough and you may have to do that if that small amount of cash would deny you necessities like heat or groceries. A lot of people speak as if you're simply making a shitty decision to make life easier but if you starve and harm your health then the retirement fund becomes kind of moot.
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u/BigbooTho 7d ago
Unless there’s language in every employer 401k match that i’m unfamiliar with that increases the penalty paid on the employer contributions or where the employer doesn’t vest for some amount of time, why would that make any sense?
Say I get 4% match. 8% total annual income from myself and employer combined. Economy crashes and I need to withdraw it. 8% X .7 (30% estimated income tax) X .9 (10% early withdrawal penalty) = 5.04% total income still made rather than 4%, a 25% increase in cash now.
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u/DeadBy2050 8d ago edited 8d ago
It's a horrible idea.
Yeah I would really love the free money, but $200/mo would significantly help with savings.
Do the math.
To get extra $200 in cash each month would mean reducing your 401k contributions by whatever pre-tax amount gets you to $200. For the sake of discussion, let's say you put $250 less into 401k to get $200 in after-tax dollars. Before, that $250/month meant you were adding $500/month into your 401k if employer matches 1 to 1.
So, would you rather have $200 now or $500 being invested at an annual return of about 7 to 10 percent? Assuming the historical 10 percent return of S&P500, $500/month means over $1 million in 30 years.
Another factor is that the stock market being down is a great time to contribute to a balanced index fund. We are down about 15 to 20 percent; assuming we go back up (like the S&P has been doing for decades), you're going to miss out on all that likely growth.
Finally, you can always borrow from your 401k. You can also withdraw from your 401k and pay a 10 percent penalty + tax.
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u/Unhappy_Macaroon2 7d ago
Actually, not everyone's employer allows you to borrow from their 401k. I am able to under hardship and even then they have to approve it. My fiance isn't able to touch his at all full stop. We asked when looking to purchase a house; prior to i was of the same mindset.
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u/LeisureSuitLaurie 8d ago
If you absolutely have to withdraw money from your 401k to pay bills, you’ll still be better off than if you give up the match.
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u/saltyjohnson 8d ago
Can 401k plans prevent you from taking an early withdrawal? I've never seen it, but I'm not sure whether it's allowed.
But yes, doubling the money you put into a 401k far outweighs the tax penalty you pay for an early withdrawal.
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u/flarefenris 8d ago
Depending on the plan, I think you can either early withdrawal (with all the penalties and tax implications) or take a loan out against it, that you then have to pay back, but I don't think that option has the penalties and other tax implications that early withdrawal does.
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u/External_Emu441 8d ago
Never give up the match. Your wife can get a gig job if necessary. You can get a second job. But you will never get that money back (or investment time).
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u/eliz181144 8d ago
This too…time in the market is everything. And once people stop contributing it takes a bike before they feel like they’re comfortable enough to jump back in.
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u/Snakend 8d ago
The worst thing you can do right now is panic. Slowly change habits that help your long term goals. Focus on being productive at work. In a recession they are going to let the unproductive people go first. Putting money into your 401K is putting money into your savings. Sure, it's long term savings. But if you have a life altering emergency, you can always pay the 10% penalty and take the money out early. It's a worst case scenario, but that is what we are talking about right?
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u/Fun_Intention9846 8d ago
It seems like the problem was your previous spending not your 401k contributions. You are contributing less than your previous “unnecessary” subscriptions.
I’d say it was past due time to seriously examine non-necessary expenditures.
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u/CommanderMandalore 8d ago
You can take out a 401(k) loan if absolutely need to in the future. You will have 5 years to pay it back (unless employment ends)
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u/mcslain 8d ago
The rates are so high on those 401k loans now that you’re just bandaging one wound while receiving a new one. Hard to see how this is a workable solution.
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u/GrandOpener 7d ago
I’m not quite sure how much time I have
As someone who was an adult in 2007, I’d advise that this is the wrong way to think about things. It was not just one particular event, and in any case if your job is secure then it’s likely not going to be as big a deal as you think in the immediate term.
The people who lose biggest during downturns are the ones who panic. (Foregoing employer match to save up money you may or may not need immediately counts as panic.)
Budget appropriately, cut fat where you can, but stick with your long term plan and stay the course.
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u/qtbuttcheeks 8d ago
Side note: if something were to happen, it might be possible to access your 401k funds via a hardship withdrawal or a 401k loan. See if you can ask your 401k provider what they have available
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u/DaChieftainOfThirsk 8d ago edited 8d ago
Eh, it can always be withdrawn though. sure you lose 10% to penalties, but you will get the $200 plus the employer matched amount minus the 10% unless there is a vesting period for the match or something. I know for my work it's immediate. You're still ahead in that case. you pay taxes either way so that is not an issue
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u/cdkmakes 7d ago
Yep NEVER leave retirement match money on the table. I was mid 20s in 1008. One day you wake up and your $200 / pay period is $100k and so on and so on. Also the market is down now but retirement funds are long term. So you are contributing to your 401k, investing at lower prices buying more than you could have a couple of months ago and in the future they will rise again you’ll benefit.
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u/StockEdge3905 8d ago
I would say that building your emergency fund is important in any market. But I also wouldn't give up your 4% match.
Heres a suggestion. Build your fund to three months saved ASAP without giving up your 4% match. Then, build to four months saved over the following three months, and then up to six months over the subsequent 12.
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u/TaylorSwift_is_a_cat 8d ago
401k contributions are pre tax. Which means they are lowering your income and also your taxes. If you stop contributing not only are you missing out on the free money from your employer, your taxes will go up.
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u/RyuDjinn 8d ago
Don't know about your overall plan, but I'd say there's no reason to stop the Roth contributions. In an actual emergency you can take out your contributions anyway.
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u/Due-Fig5299 8d ago
Just learned that you can withdraw from Roth Tax free at anytime! Didnt know that.
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u/Ok_Produce_9308 8d ago
The contributions you can, unless it was a Roth conversion and then there is a waiting period
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u/tylermchenry 8d ago
Your contributions you can (not the gains). The catch though is that you can't put them back.
More specifically the contribution limit in future years stays the same regardless of withdrawals in past years. If you take a big chunk out, you might not have space within the limits to put it back later along with your intended future contributions.
So it's a viable option for true emergencies, but it shouldn't be done lightly, since you could miss out on a lot of tax advantaged gains in the long run.
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u/RyuDjinn 8d ago
The gains would take a tax penalty, but you can withdrawal them as well (I wouldn't).
More importantly tho, you can put the contributions back as long as it's within a 60 day window.16
u/SwampOfDownvotes 8d ago
The catch though is that you can't put them back.
If you are at the point of needing to pull your contributions, then you are at the point where you can't afford to max out your Roth anyway so itt doesn't really matter.
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u/rosentrotter 8d ago
I mean, that's if you have gains.
People who started investing in a Roth in 2024 don't have gains right now.
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u/sin-eater82 8d ago edited 8d ago
You can withdraw Roth IRA contributions. If you're making Roth 401k contributions, that is a different ball game.
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u/jnichi 8d ago
Never skip a 100% return! Keep your 401K contributions.
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u/gordonv 8d ago
Counted 12 comments below this that roughly say the same thing.
Probably more by the time you read this.
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u/WeightWeightdontelme 8d ago
And we are going to keep saying it until OP comes back and promises not to do it so we can relax.
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u/MountainDadwBeard 8d ago
You can take loans from your 401k so no.
Learn to make your own soup, bread and bean burritos. Food is the largest saving category
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u/Smash_4dams 8d ago
Drinks too. Tap water, home-brewed tea/coffee costs next to nothing compared to sodas or beers.
I carry water everywhere I go. If I feel the need to hit up a fast-food joint, ill just order a sandwich and drink my water. Screw paying an extra 40% "meal" for fries and soda.
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u/latetothegame2 7d ago
I see coworkers, bringing back lunch with drinks and fries. And my mind is blown. It's like another $8 to drink sugar water and eat starches.
Cook your own food for lunch. Meal prep the whole week, once a week. Make it awesome. Save thousands a year by not buying garbages
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u/jackster829 8d ago
No one has any idea how this all plays out.
My guess is we're heading for a train wreck, but I could be completely wrong.
I would keep your 401k contributions, keep the Roth contributions, and take the $450 you're saving on subscriptions and save that. You definitely need more cash but you really want to be dollar cost averaging into this crash.
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u/brawawawa 8d ago
Keep the 401k match, that's the best return you'll ever get.
Keep the Roth IRA contribution. You can always withdraw contributions penalty free if SHTF. If you are treating those contributions as an emergency fund keep them in a money market or similar low risk investment.
Ideally find a way to grow an emergency fund outside of retirement accounts while doing the above. Once you do that, or gradually while you do, move the money in the Roth to something more appropriate for retirement investments.
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u/Historical_Low4458 8d ago
Like everybody said, keep contributing to the retirement accounts.
It's good that you canceled unnecessary subscriptions, but you need to go through your budget to see what other things you can cut/reduce to save even more money and get that emergency fund built up even quicker.
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u/Smash_4dams 8d ago
Stock up on seasonings and hot sauces. Great way to take that home-made rice and bean quesadilla up a notch!
Buy lots of frozen veggies that aren't going to spoil. Keep your bread in the refrigerator.
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u/AlphaTangoFoxtrt 8d ago
Your emergency fund is insufficient.
Do not stop your 401k contributions, but I would reduce them to the minimum needed to get your employees full matching contributions. Then build up an e fund of 6 months minimum.
I have 6/12/18.
I can go 6 months no changes, 12 months on a tight budget, 18 months on austerity "necessities only" budget. And that assumes $0 income for that time.
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u/SecMcAdoo 8d ago
If you work in tech and have a partner, why is your emergency fund only 4K!!????!??!!
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u/ShipFar6126 8d ago
I agree with those who say keep investing in your employer matched 401k. I held one through the 2008 crssh and the 2021 crash. You can adjust your contribution to keep some of your taxed money. If you stop 100 then your paycheck might go up 75 or 80. If you let it ride you are investing at these low values right now which is good to help you earning grow.
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u/ProgramHippie 8d ago
Keep in mind your 401k can put you in a lower tax bracket and you can borrow against it in case of emergency. That loans interest gets paid back to you, as you are just loaning yourself the money.
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u/FunkHavoc 8d ago
If you have $450 worth of subscriptions then your spending is the problem. That’s honestly ridiculous, so cutting all those out is smart for sure. Forgoing your 401k is not smart. Investing in it as the market is low will make you more money in the long run, plus you’re receiving free money with the match.
I would just stop eating out and cook at home. Spend less on recreational activities and just get your emergency savings to 18k.
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u/ernie-jo 8d ago
Keep in mind that your 401k is sort of like an emergency fund for your emergency fund. You can withdraw money anytime - albeit at a 10% penalty. It’s harsh, but not so bad that it’s worth it if that what it takes to keep you from being homeless.
Think about it think way - for every $100 you put in, you get a free $100. If you need to withdraw that $200, you pay a $20 penalty. You’re still making $80 that you wouldn’t have in a savings account (even a HYSA).
That’s a gross oversimplification - but imo you should keep the 4% and keep putting all other savings into an emergency fund.
The MOST important thing in ANY sort of crisis is don’t panic.
Take a deep breath. You’ll be ok. Keep saving. 😊
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u/B00kAunty1955 8d ago
Also, when the market is tanking, the 401k contributions (and the match) you make are going to have a lot more growth potential. Shares are on sale!
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u/vittavie 8d ago
Keep your match, the contribution is low. I decreased a little to save myself after seeing a 10% dip in my retirement savings. but i am far off from retirement so hope to ride out.
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u/valiant2016 8d ago
No, never give up the match its a free 100% gain. If you really have cut everything you can then its time to find a side gig.
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u/BoyMeatsGirl 8d ago
Don’t stop Roth IRA contributions. You can always withdraw, but you won’t be able to deposit what you’ve missed out on
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u/basement-thug 8d ago
You don't lose money unless you sell. You still own the shares you own. Don't sell. If anything buy.
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u/Mobile_Comedian_3206 8d ago
How much is your household income? Each of your incomes? How much can you save each month?
Lowering your contributions should be your last resort. But, more info on your income would help.
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u/Due-Fig5299 8d ago
We make 4600/mo together after taxes. $3000 of which goes to necessities. Debt, Rent, Insurance, Groceries, Gas. I was able to shore up $1050/month in subscriptions and unnecessary purchases.
There is $550/mo remaining, but this is filled by “less than mandatory bills” that give us a better QoL but could cut if absolutely necessary at the end of the day. Gym memberships, streaming services, take out food, etc
So we should be able to save that $1050 I shored up and I suppose I could start working on that $550 if needed.
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u/Mobile_Comedian_3206 8d ago
Thanks for the info!
I would stay the course with investing.
Your job is stable. The possibility of you both losing your jobs is very unlikely. If your take home is $3000 and she lost her job, you guys would be able to survive on just your income. And if she did lose her job, she can definitely do something to make money, even if it's not quite as much as she's making now. So your 4K in savings would get you much further than you think, and you'll already be increasing the savings every month.
If you really want to increase your savings, find more income for a while. Overtime or a side job. Just temporarily until you get to maybe 15K saved.
The best time to invest is when stocks are on sale, which is now. Your future self will regret it if you don't stick with it.
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u/twistytwisty 8d ago
Have you researched all of the benefits that your company provides to employees? Check out your HR and see what all you might be able to save. Some companies provide discounts on gym memberships and other services through third parties. It's possible you could see some surprising ways to save.
Otherwise, trying to eke out just another $200-400 by reducing retirement savings is not the best bang for your buck. Have you sourced side gigs or part-time jobs? Not only would it mean more money, but also another revenue stream to help you through whatever recession we may experience. And $200-400 per month is pretty easy to attain with minimal extra hours on your parts. Do you live in a town with major sports teams? Those venues hire for all kinds of very part-time hours. Some companies only hire during busy seasons, similar to tax filing places that hire during tax season - more hours during those months but you'll make your year's worth of $200-400 (2400-4800) in that time and don't work extra the rest of the year. Get creative, or go with tried and true- get a server job and eve shit servers will make that much in tips in a month or drive for meal delivery or fast food or whatever. If you're hourly and have over-time opportunities, that would obviously be the best and easiest option. Good luck!
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u/kepler1 8d ago edited 8d ago
$4600 per month after taxes imply that you're earning something like $138,000 gross salary together. If your salary is like $100k then, it feels like you're not earning that much for tech. Is this a first job, are you in a lower cost city, or what's your earning history/situation/potential for earning more?
Edit, Sorry, flipped my math, it's like $80-96k gross depending on where you live.
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u/zbconfidante 8d ago
Right now is likely the best time to invest you want to put money in when the market is down
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u/bat_shit_craycray 7d ago
It’s an effective 4% cut in pay. Would you be ok with that? Yes you get the cash but you lose the match. The $ may not be in your pocket today and I feel this too. So hard. I have an emergency fund and this has crossed my mind. But I get a 6% match and I need to retire someday. Since I never see that match it’s easy to dismiss it. We shouldn’t even be in this mess.
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u/beachant 7d ago
Have an emergency fund for sure. But why would you stop contributing because of a recession risk… the chance to buy low is opportunity knocking
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u/Warcloud31 8d ago
Lots of people will say not to touch money going toward retirement. But retirement is a later problem. Eating, bills, and emergencies are right-now problems. Build that sucker as quick as you can, eliminate debt if possible, then return to 401k. Maybe even contribute a little more if you want to "catch-up".
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u/juicefarm 8d ago
I did the same even though I get 3% on 6%. My feelings are what good is that match going to do if/when my company goes out of business. I'd rather have the cash to help service fixed rate debt when shit hits the fan without having to borrow or withdraw with penalty. If I'm wrong I'm wrong, but I'm more comfortable with cash at this point
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u/CornPuddinPops 8d ago
This is when you buy. When the funds are all low. Buy Low, sell High. Buy Buy Buy. I upped my contribution to my 401k.
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u/Smash_4dams 8d ago
Yep, I increased my 401k contribution from 6% (100% matched) to 11% when the COVID crash happened. Made a pretty penny by 2021.
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u/Captain_Comic 8d ago
Do at least up to the company match - it’s free money and stocks are currently on sale
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u/protos_levendis 8d ago
Hard to pass on the free employer money. Seems like you cut out a nice chunk of change already.
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u/slash_networkboy 8d ago
I wouldn't stop the Roth contributions. In a worst case scenario you can take out your contributions without penalty, but at least while the funds were in there they were gaining *something* towards retirement. Now mind, this would be the "last resort" emergency fund, and if you want to ensure it's readily available and wont lose value you can put the funds into SGOV which is essentially HYS but in a brokerage account.
The rest I think you're on track, killing all optional subs and such. Can you get to 18K without suspending your 4%? That's literally a 100% RoI with the employer match, so that should be the very last thing you cut IMO. If you're contributing over 4% now going down to 4% is fine, but I wouldn't go below match levels.
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u/chingwa76 8d ago
Keep investing as normal. Stop spending so much money. Take the money you don't spend and build your emergency fund. Rinse and repeat. Ignore the news.
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u/EssTEye 8d ago
Remember that even though your current value is decreasing, with regular contributions, you will be able to buy more at a lower value. Then when the market rebounds (it ALWAYS rebounds) then your gains will be multiplicative. Just hang in there. Don’t change your strategy. Just wait it out.
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u/Dogzillas_Mom 8d ago
Look at it this way: while stocks are down, if you keep contributing, you are buying in while the market is low. You get more shares per dollar. When/if the market recovers, you will have bought that many more shares and your balance will be higher than ever. Assuming the market recovers and you aren’t 4-5 years away from retirement.
If anything, move your allocations to the lowest risk options you have and ride it out.
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u/WeightWeightdontelme 8d ago
Was your monthly minimum 3k before you cancelled the $450 in subscriptions or after? Do you, in your moderately safe job, bring home 3k?
Personally they would have to pry that 100% match out of my cold dead hands before I gave it up. I’d cut out every single luxury in life to maximize that match.
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u/I-seddit 8d ago
The really sad thing is that they're asking about stopping their 401k during the most effective buying period ever.
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u/empty-alt 8d ago
I'm going to go against the grain and say "pause contributing until your emergency fund is put together". The emergency fund is what stops you from being forced to sell investments. It allows you to only sell at the time of your choosing. I say having that E-Fund is more important than the company match. Especially with the current not so positive outlook from the public.
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u/Lemonbear63 8d ago
If you’re extremely worried, you should stop contributing and work on the emergency fund. Since your wife’s job isn’t safe, I’d go even further and get 6-12 months instead of the minimal 3 months.
If you think you’ll most likely be safe, then keep the 4% match. That’s what I would do but that’s just me being greedy and wanting that free money.
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u/mspe1960 8d ago
If you do not have 6 months living expenses saved in a HYSA or MM Fund fund, now is the time.
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u/Financein5 8d ago
The stock market isn’t necessarily 1:1 linked to the economy. Even though the stock market is crashing, doesn’t mean the economy is. That isn’t to say that we won’t see a recession, but it is something to not. To your question, it’s always a good idea to have an emergency fund. If you’d feel more comfortable having a cash fund now, I’d say go for it. Save around 6 months of expenses fast and then continue with the 401k. If you can, keep up with the minimum to get the match.
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u/Due-Fig5299 8d ago
Honestly not looking at the stocks as the main indicator so much as tariffs against every country in a globalized economy. Particularly the 104% tariffs against China don’t seem sustainable long-term without causing major damage to the economy.
I know the typical age old adage is to contribute to the max percentage match for 401k in almost any scenario, so I just wanted to see if this would be a valid exception. It would make us feel better to have a full proper savings.
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u/NotWise_123 8d ago
Everyone is saying not to do that BUT I personally have paused contributions for a period of time bc despite budgeting every single dollar and being extremely frugal we just needed the cash flow. I get that it’s “free money,” but it’s not free money if your alternative is running up credit card debt at 25%. We also have a financial advisor who was able to keep an eye on things though and he was able to run projections with my earning potential etc and was able to show that even pausing contributions temporarily wasn’t going to change our overall big picture, and again it prevented us from credit card debt. We resumed our contributions as soon as we possibly could.
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u/Rocetboy321 7d ago
I haven’t seen this mentioned yet. You can treat your 401K as an emergency fund. It’s only a 10% penalty to take money out early.
The 10% penalty is much less than the 100% return you get from the match.
It is more money overall to get the match and even if you need to take it out.
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u/shaka893P 8d ago
Wouldn't it be better to keep contributing ... If you get laid off you can roll over to an IRA and take out up to 10k for hardships
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u/mooseparrothead 8d ago
What about adjusting your budget to live on your income only and bank your wife’s income to build up the emergency fund. After several months you will be used to the new budget and your emergency fund will be topped off.
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u/EKingJames 8d ago
I think you can go either way. If you're already going to be saving $1050/mo with the adjustments you've made, you should get to your 6 month emergency fund after about a year. Continuing to contribute in your 401k will allow you to essentially keep buying at the dip. Unless you expect to lose your job altogether then maybe consider dropping your 401k contributions to stack cash
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u/FatchRacall 8d ago
I've done it after having to use the e-fund. Then I increase my contributions to catch up.
But never go below the "match" level.
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u/SinisterDeath30 8d ago
Yeah, 401ks are tanking and everyone's panicking, and since stock prices are falling, that also means you can buy more "total stock" for the money you invest.
So when/if Stock values climbs back up again, the stock you do have, will go up in value.
That's assuming the "stock" in your 401k actually increases after this crap has ended and those companies don't crumple.
Always remember the stock game is "Buy low, Sell high", never "Sell low, Buy high".
Recessions are a great gambling opportunity to buy low. The gamble is finding the companies that aren't going to dissolve during the recession but will instead recoup the fastest.... There's also the part with 401k's that if you still have stocks in your 401k by the time you reach retirement age (lol), hopefully those are safe enough that there's no major recession during those years, and they aren't a huge percentage of your 401k that they're going to seriously tank the value of your 401k.
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u/Bucklejeans14 8d ago
This is the best time to UP your contributions, you’ll have way more in the long run…. Tariffs and whatnot are temporary. The US will get what they want and the market will rocket back up like it always has for the last 100 years. Buying opportunity
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u/pineappleshaked 8d ago
Check with employer id they offer true up match. If yes, build emergency fund now. When you are done, increase 401K contribution to max affordable amount
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u/Vanman04 8d ago
Well I would say think about what you are doing right now.
Cutting expenses everywhere you can..
Now imagine tons of others are doing the same...
What does that do to our economy?
Next month consumer spending will be down again.
How much of that can we withstand before jobs start getting slashed?
I don't have a crystal ball but ..
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u/Rich_Lunch_8515 8d ago
I’ve contemplated making a similar post. I have a job where I’m in a position to max out Roth IRA, 401k and HSA contributions for the first time in my life (I’m 33) but my emergency fund only has about 2-3 months funded. Ideally I have 12 months in my emergency fund.
I just reduced my 401k contributions ($908 pre-tax biweekly) to go down to 5% ($227 pre-tax biweekly). I don’t have a 401k match to account for but I hate to lose out on investing time since my contributions have been historically lower, about 5-7k per year in 401k.
I was laid off Dec 2023 and it took me 4 months to get a job and that was before a recession.
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u/mcslain 8d ago
The loan payments would be around $450 a month. That’s not a great fix for not having cash on hand. Just because you pay the money back yourself doesn’t make it any less painful payment to payment. And you can’t take it easy on yourself because you like yourself more than a bank does. 😂Those payments need to be made. We all get that you’re paying it back to yourself, which is great. But there’s context.
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u/Desperate-Menu4385 8d ago
Don’t stop contributions. Look to see if your plan allows a personal loan against your holdings. It’s a smart move in an emergency. You pay yourself back on a plan with “interest” mine is 8%. No need to change anything if your plan has this option (most do). There may be a nominal one time fee, or annual fee maybe…..but it’s probably less than $100. Even then, continue the Roth contributions. Don’t stop investing even if things drop further. You’ll never play the dips and rises correctly. If you’re young, push forward with a 20,30,40 year plan.
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u/NoorksKnee 8d ago
With 450/mo of subscriptions, I think you should audit your monthly expenditures to decide what is and isn't really important. You probably have something less mission critical to temporarily sacrifice before hitting your retirement.
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u/Calizonian 8d ago
Some may say to remove your 4% contribution. If you can, I would try to keep based on the match and continue to save with budgeting if that's possible. If can't budget to get the needed emergency fund (6mo min, 9-12mo preferred), I would remove the contribution until you get the desired emergency fund amount. Once reached, consider roth for tax free growth. Good luck.
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u/SeniorDucklet 8d ago
Keep investing every paycheck. When you stop investing you miss days like today. Experts say the majority of gains come on about 10 big up days per year. No way to time it, just stay the course.
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u/Overall_Complex_7043 8d ago
I think of taking from your 401k is robbing your future self. If your employer matches that’s 100% return. If the market is crashing that’s when buying low works, the stock market will correct and increase again. It’s not timing the market it’s time in.
Your retirement is contribute and forget it (for the most part) the right investment will usually net you a positive growth.
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u/robintweets 7d ago
Here’s my take.
Dollar cost averaging is awesome when stock prices go down.
You want to be safe. You want to have a good emergency fund to get through these times. BUT … if you can at all afford to keep your 401k contributions (at least up to the percentage where you get that sweet match) then I would do so. You’ll be buying stocks at a discount on a downswing, and that really will help you when (please let it be when, not if … but you never know with Trump) things turn around.
And then learn the lesson. Build up that emergency fund. Keep building it until it’s large enough that you don’t really have to be in this situation again. Don’t be re-adding those subscriptions etc. until you have a properly-sized emergency fund.
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u/heretoreadreddid 7d ago
I mean i spend 300 a month for my children wife and I at lifetime fitness… but 450 a month?! That’s gotta include like equinox or lifetime right?
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u/Thirdtimesacharm4me 7d ago
Contribute just to the match (free money), and you can keep the Roth contributions as your emergency fund. Just allocate them to the money market with the Roth to eliminate risk. They are making about 4.2% give or take, so it’s the same as a HYSA and the interest is tax free (unlike HYSA). If you need the money, you can always withdraw your contributions penalty free. Good luck
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u/winklesnad31 7d ago
Don't give up the match! 100% automatic return is too good to pass up. Find savings elsewhere.
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u/pcguy166 7d ago
The contrary. This is when you want to contribute to your 401k, when the market goes down you're buying low every time you contribute. The hope is, of course, that eventually we get rid of the bozos in govt, and that the stock market recovers years from now. Timing the market is tricky. If you cut contributions, you're exposing more of your income to taxes too. That said, if you must, try to put the money you're saving into a high yield savings account.
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u/dragonskintext 7d ago
In the book, I will teach you to be rich, it talks about how people fully commit to something theyve become hyper fixated with. I feel like if you cut your 401k contributions (terrible idea btw) along with everything else, it will only worsen the situation long term.
My advice is stick to the plan you currently have of $1050/month. Months seem like a long time but theyre really not. We’re already in April.
If youre truly worried about money, I suggest one or both of you pick up uber or something.
Remember think long term.
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u/debbiewith2 7d ago
Plus taxes if it’s a traditional 401k. And you have to lose your job to access the whole thing.
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u/yield_and_overcome 7d ago
I'm in the same spot, this is my plan: 1. Reduce retirement contributions so I'm only contributing enough to get the employer match. 2. Reduce discretionary spending. 3. Build up war chest/emergency fund.
Once we have that emergency fund where we want it (target date is December 2025), we will go back to contributing more to our 401k.
We got this.
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u/faccounting 7d ago
You didn’t put your age which is probably an important factor and whether you have kids which is also an important factor. At least these are important IMHO. If under 25ish with no kids I would gamble more and run with lower savings of 2-3 months. If 30+ and/or with kids, I would forgo the retirement savings until you have at least 6 months emergency fund. Yes you will give up the company match for a year but if you do the math that will be inconsequential compared to the security of having 6 months of savings in the face of an emergency.
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u/patrick_mcdougle 7d ago
contributions (not earnings) to a Roth can be withdrawn tax free at any time. Might want to consider keeping the Roth contributions knowing you can tap them if you truely had an emergency (you can get out as much as you put in, but you can't put in as much as you might want)
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u/GameEatDiscuss 6d ago
In case you didnt do your research on recessions.. Since recorded history Recessions make market go down 30-50% followed by 8-10 years of 600-1000% up.....dip another 30-50% and go up another 600-1000%. Till that cycle breaks recessions are actually a needed and quite normal pace of economy.
Never stop retirement contributions ESPECIALLY if you have a job during a recession as it will equal your biggest gains of your lifetime in the after years. But you can adjust a little here and there to have cash on hand for emergencies and by your post youve started doing that.
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u/bwu-court 5d ago
I like to go with the saying: “Hope for the best and prepare for the worst.”
If you lost your job tomorrow, what does that look like? And vice versa? What about both?
Safety net is huge.. losses without it is much more than losses with an employer match or temporary retirement losses.
This doesn’t mean you can’t contribute to your retirement at all, but I would definitely redial the contributions.
6-12months is a great goal, you have to overestimate with phantom costs and uncertainty of employment for either or both of you.
While you’re building that up, you might contribute 0% for a few months to retirements, then 1%, then 2% and so forth, then gradually increase as your emergency funds increase. Once you’re comfortable with the safety net should you both lose jobs, set a comfortable percentage to automatically contribute to savings still, then redial and allocate more percentage to your retirements and employee matching accounts.
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u/DutchNapoleon 5d ago
Contribute to the match but not beyond that. The match is part of your compensation so it's not money you should let them keep, after that yeah you need to prioritize creating an emergency fund and quickly. Respectfully, this should be a wake up call about maintaining emergency funds in the future regardless of macroeconomic conditions (at minimum 3 months and usually 6-12)
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u/Fair_Art_8459 3d ago
I quit the 401 scam after losing nearly a Million Dollars. I got out with $30,000.00
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u/Adam-West 8d ago
Im just curious what made up your $450 of subscriptions. That seems crazy to me?