What to Do If You Lost Your Match (Article)
What to Do If You Lost Your Match
Due to the pandemic, some companies and organizations are in difficult financial straits that they did not anticipate. It’s not surprising that reductions in, or eliminations of, employer contributions may be occurring for the 2020 plan year. Employer match or profit sharing can be a significant expense, and employers often structure their plan in a way that gives them this flexibility.
However, studies consistently show that the employer match is often the primary driver that encourages people to save. So, what should you do if your employer makes the hard decision to suspend matching contributions during the COVID-19 pandemic? Consider these steps:
- Evaluate your emergency savings. You should have at least one-month worth of expenses saved, ideally three to six months, in the bank that you can easily access for unforeseen expenses. If you don’t have sufficient funds in the bank, you likely want to consider reducing your savings rate in the retirement plan to ensure you have adequate savings in cash first.
- If your emergency savings is sufficient and your budget allows, consider increasing your savings rate to make up for the lost company contribution. For example, if your contribution was 4% and the employer typically contributed 3%, consider moving to 7%.
- Avoid turning off your savings. It can be a mental hurdle to restart. Don’t miss the opportunity to save each and every paycheck. Someday, you will be so thankful that you stuck to that savings habit. If you are struggling with cash flow, look at your monthly budget. Are there any expenses that can be reduced?
- Feel confident about your current financial situation and own a home? Consider refinancing your mortgage now at today’s lower rates. Then, take the monthly savings you have from that transaction and put it towards saving for retirement.
- Are there any other benefits available through your employer that you may have forgotten about? A Health Savings Account (HSA) is a great example. If you are able and haven’t done so, begin making regular contributions. The triple tax benefits available through these accounts are an excellent reason to stop ignoring them.
Don’t let a temporary, yet tough, decision from your employer derail your wealth building efforts. In the end, you’ll be glad you stayed on track!
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