My biggest fear right now is losing a job and having to empty my 401k which would not last very long after penalties. I'd like to do something about it. I don't necessarily have a reason to fear job loss...but being that it can happen to anybody...I'm nervous.
I'm 30 years old and started my retirement 401k about 3 years ago. I didn't save anything through my 20's. I currently contribute 10%. I've been with my company for 4 years and will be fully vested on my 5th year. The employer matches the first 2% at 100%, next 4% at 50% of pre-tax contributions. My 401k is about $18,000 at the moment. I don't have any other retirement savings
I would like to save about $40,000 for an "emergency fund", which would allow me to live under my current expenses for a little over a year.
I am already saving some every month but I'm wondering if I should change my 401k contributions temporarily so that I can build that emergency fund quicker? And then re-up the 401k after I get closer to my emergency fund target?
Thoughts?
I'm more of the mindset that you want to keep doing the 401K and emergency savings, so...
Maybe just reduce your 401K contributions to 2% for now, since that's the cutoff for getting a full match.
Then use the difference to help build your emergency fund a bit faster, and resume higher 401K contributions after you've accomplished that goal.
---
I agree, but I would reduce 401k contributions to 6%, to get all of the matching you can. Because I can't pass up free money!!!!
Also, look into a Roth IRA. I'm not sure on the specifics, but I believe you can withdraw your contributions (but not earnings) penalty-free. But don't quote me on that.
---
I would absolutely not pass up the free match. Nowhere else will you earn 100% and then 50% on your money. Once that year passes, the opportunity is gone. If you are contributing past the 6% though, you could definitely do a short-term cutback to build an emergency fund.
---
I agree with folks above, keep maxing out your employer match. You don't want to leave money on the table just for the sake of building a cash reserve a little faster -- you can build that up gradually.
Also, personally 40K seems like a lot to leave as dead money. A cash reserve is nice, but I'd cap it at 6 months expenses and apply the rest to regular investments (diversified mutual funds etc outside of a tax-advantaged account). You can always tap into them when you need to. It doesn't all have to sit as cash savings.
---
I agree, but I would reduce 401k contributions to 6%, to get all of the matching you can. Because I can't pass up free money!!!!
Also, look into a Roth IRA. I'm not sure on the specifics, but I believe you can withdraw your contributions (but not earnings) penalty-free. But don't quote me on that.
That's the common rule. First fill up your 401k up to the employer match (6% in this case). Then fill up your Roth IRA. After that, you can look back at your 401k if it's worth anything, or put the money somewhere else.