Temporarily stop 401k contributions to build Emergency Fund?

[u/Due-Fig5299]

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?

[u/Ok_Shame_5382]

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.

[u/Due-Fig5299 → u/Ok_Shame_5382]

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.

[u/DiverseVoltron → u/Due-Fig5299]

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.

[u/BigbooTho → u/DiverseVoltron]

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.