Email question: Should our current struggles change our 401k contributions?

Dear Pete,

My husband and I are struggling to make ends meet. Should I lower the percentage I put into retirement and lose my company’s contribution to my retirement so I have more in my paycheck each month? Currently, if I put in 5% and my company will put in 10%.


Hi Marie,

Great question. I’m choosing to take an unorthodox approach in answering this question. To begin, I’m going to tell you about some other possible solutions, and why your proposed solution is better. Then I’m going to propose some other possible solutions that might be better than your proposed solution. And finally, I’m going to help you understand how to make your solution work the best. Cool?

Solutions that are not as good as your solution

  1. Going into credit card debt- By the way, I’m making the assumption that you are currently not going into debt. If you happen to have gone into debt on a short-term basis, please know that going into debt as a mid or long-term strategy is a really really bad idea. You have a cash flow problem. And if you use debt to address a cash flow problem, then you will have a debt problem and a cash flow problem.
  2. Taking out a 401k loan- Again, you have a perpetual cash flow problem. Perpetual cash flow problems generally can’t be fixed by incurring debt, especially a 401k loan. A 401k loan is a sucker’s bet.
  3. Do nothing- I have to admit, doing nothing is what most people do. It is the non-decision. It takes no courage. And it is absolutely fruitless. Doing nothing is no good.

Solutions that might be better than your solution

  1. Change tax withholding- This is an advanced move. But if you consistently get a tax refund check and you’ve had no major changes in your deductions, then consider changing your tax withholding on your paycheck. By changing your withholding, you will increase your cash flow and decrease your tax refund.
  2. More gigs- No one wants to hear they need to work two jobs. Seriously, no one. But, if ends aren’t meeting, and there is no reasonable solution that eventually leads toward a long-term fix, then you might need more income coming into your household. If you choose this path, make sure you know exactly how much more money you need to make, and how long you need to make it.

How to make your solution work

Marie, your solution needs some guidelines. If you do choose to reduce your current 401k contributions, you must make sure you put it on a deadline. In other words, you must restart the contributions within six months. Additionally, you’d be wise let your next raise flow into your 401k, instead of your take-home pay, to make-up for the forgone savings period. Your solution can work, but you need to be really careful. I’ve seen several people use your strategy, only to find themselves years down the road with very little money in their retirement plan because they “forgot” to restart contributions.

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