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Should You Continue Contributing To Your 401(k) Without Company Matching?

14 January 2010 6 Comments

I know multiple people personally who have had their 401(k) matching cut in the last couple months.  For each of them, it is a fairly large blow to their income/savings.  Cutting 5% matching on a 401(k) is a 5% decrease in compensation.  The question becomes, should you continue to contribute to your 401(k) without the matching?  Well, that depends.

Depending on your discipline levels, you may or may not want to keep putting money in your 401(k).  If you tend to spend all of your paycheck, then yes, you probably should continue contributing since it is forced savings.  If you’re disciplined and can continue to save that money independent of a 401(k) plan, then you have additional factors to consider.

For me, I am not a buyer of the broad stock market at current levels.  If you agree with me, then maybe you should accumulate cash (to later deploy at lower stock prices).  While many will dismiss this as market timing and a waste of time, do remind yourself that the best time to buy was 9 months to a year ago.  While selling your entire portfolio into cash would be the extreme of trying to time the market, holding your positions and simply halting the deployment of new money is not aggressive market timing.  In fact, it is a pretty conservative move.

If you were to do this, what would you do with the cash that builds up (the cash that would normally go into the 401(k))?  Well, you could open a Roth IRA or a normal trading account and keep the cash in there.  Then what?  Depending on the market action, consider the following options:

  1. If the rally continues, you would have been better off putting money in your 401(k) most likely.  If you get frustrated that you have cash not earning a return, consider buying high dividend defensive stocks.  These positions will still give you exposure to the market, but will outperform in a major correction (most likely).
  2. If the market corrects and moves lower, you have made the right move.  You could slowly move your cash into the market as the market moves lower.  Consider some index ETFs such as SPY if you just want broad market exposure or consider large cap dividend plays – look up the Dogs of the Dow strategy.

Have you had your company matching cut?  Are you still contributing the same amount?


  • Michael61 said:

    Honestly, I'm not smart enough to time the market. I shovel money into the market (S&P 500 index fund) with each paycheck. This has server me well recently since I have been picking up cheap stock over the last year.

  • 20smoney (author) said:

    Sure, the market has served anybody long well over the last year. I'm nervous about what happens over the next couple years. I recommend moving forward with caution!

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  • Wojciech Kulicki said:

    We had our matching cut about 12 months ago. For a while, I was continuing contributions simply because it was a good and automatic way to save for us. But recently, when my wife was laid off, we really needed the temporary boost to our budget, so contributions were cut. I also have a Roth IRA which I try to max out every year, but I still like the 401(k) option because it's a very "invisible" solution that happens in the background.

    So if the stars align in a few months, I'll be resuming 401(k) contributions, even without the match.

  • nifumich said:

    I think it is very important to continue the 401K contributions. Yes the market is rocky and the economy is bad, but at some point, just like it always has in history, the market will go back up and those low stock prices will go much higher again and if you continued your 401K contributions, you will reap the benefits.

    Now I totally agree with the last comment about the temporary boost to the budget. If you need the money, then don't contribute to your 401K, or keep the contributions lower, but if you have a lot of time till retirement you will be happy you kept the contributions going.

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