Profitable Ideas: A Simple Money Move to Make Now, When NOT to Save for Retirement, and More
January 29, 2016
4 Comments
Pam
on January 29, 2016 at 3:30 PM
I am torn about the Reuters retirement article. If your company has a good company match, it might not be a good idea to leave that money on the table. Obviously, an emergency fund is critically important, but once you’ve got that covered, the decision isn’t as simple if you’re just deciding between retirement savings and retirement of consumer debt. A better option then might be to contribute to your 401(k) just to the amount of your company match, then put the rest of your money toward paying down your debt.
You’d have to do some math to figure out which plan works in your favor in the long run. There are lots of interest payment calculators out there (bankrate.com has a nice one in their credit card section) to figure out how much extra you’d pay in interest if you paid down your card balance a bit slower. Depending on how much debt you have and what interest rate you’re paying, you might come out ahead by getting the matching funds and tax savings (assuming pre-tax contributions) from putting that 5 or 6% of gross into your 401(k).
But of course, those calculations are only valid/accurate if you stop charging up more debt and actually pay off the debt you have!
Pam – I’m a little torn on this one, too. But as I responded to Brad, I’ve found it usually works out better long-term for people to focus on getting out of debt and building savings first. Especially if there is consumer debt, I’d want to get at the root of that.
A company match is an amazing benefit, a guaranteed return on your money. But dealing with debt issues is even more important. And if there isn’t any or much of a savings cushion, then people may end up having to borrow against their 401(k) in a financial emergency, which defeats the purpose.
In most cases, it’s best to use the match as an incentive to get out of debt and build savings ASAP.
Liked the When Not To Save For Retirement article. Just counseled a young family man with the same advice; build cash reserves and pay off consumer debt first.
It makes it tough if there’s a company match available from a workplace retirement plan, but I’ve found that for most people it’s generally best to focus on those two goals first.
I am torn about the Reuters retirement article. If your company has a good company match, it might not be a good idea to leave that money on the table. Obviously, an emergency fund is critically important, but once you’ve got that covered, the decision isn’t as simple if you’re just deciding between retirement savings and retirement of consumer debt. A better option then might be to contribute to your 401(k) just to the amount of your company match, then put the rest of your money toward paying down your debt.
You’d have to do some math to figure out which plan works in your favor in the long run. There are lots of interest payment calculators out there (bankrate.com has a nice one in their credit card section) to figure out how much extra you’d pay in interest if you paid down your card balance a bit slower. Depending on how much debt you have and what interest rate you’re paying, you might come out ahead by getting the matching funds and tax savings (assuming pre-tax contributions) from putting that 5 or 6% of gross into your 401(k).
But of course, those calculations are only valid/accurate if you stop charging up more debt and actually pay off the debt you have!
Pam – I’m a little torn on this one, too. But as I responded to Brad, I’ve found it usually works out better long-term for people to focus on getting out of debt and building savings first. Especially if there is consumer debt, I’d want to get at the root of that.
A company match is an amazing benefit, a guaranteed return on your money. But dealing with debt issues is even more important. And if there isn’t any or much of a savings cushion, then people may end up having to borrow against their 401(k) in a financial emergency, which defeats the purpose.
In most cases, it’s best to use the match as an incentive to get out of debt and build savings ASAP.
Liked the When Not To Save For Retirement article. Just counseled a young family man with the same advice; build cash reserves and pay off consumer debt first.
It makes it tough if there’s a company match available from a workplace retirement plan, but I’ve found that for most people it’s generally best to focus on those two goals first.