Disclaimer: We are not financial professionals. Please do your own research and/or consult a professional before making important financial decisions.
Universities all over the country are temporarily suspending generous retirement fund matches. Recently, the Fortune 500 company my sister works for decided to follow suit, which is ridiculous given that they’re not in dire straits and have been through worse. (It makes sense when DH’s tiny company temporarily cuts the match, but a Fortune 500 company that’s built on keeping top talent with firm specific human capital AND wants to be able to gently let older workers go in a world without mandatory retirement… it’s ridiculous and very short-sighted. I mean, maybe it’s helping them delay lay-offs… I would be more confident in their decision making if they hadn’t tried to make everybody come back into work in person after the initial quarantine was lifted even if they were productive at home or were in Covid danger categories. But I digress.)
So what should you do if you are in this situation?
Part of the answer depends on how secure your job is. If you’ve got tenure and you don’t think your uni is going to go completely out of business, or if you’re not in danger of being laid off from a large firm, then you need to make up the difference and contribute more to your retirement account. If you’re worried about losing your job and being unemployed for a while and don’t already have a good emergency fund, then you might want to contribute the same or less to your retirement account (though if you are in this situation, you should see where you can cut spending and do a financial fire drill before you sign anything that decreases your retirement contributions– you need to take care of yourself in the future too).
How do you contribute more? The first way is easy: if you haven’t been maxing out your 401K/403B ($19500 in 2020), then up that to the amount that you used to be matched. So if your uni gave you 5K if you put in 3K, then up your contribution to 8K (or as close as you can get). If you had a 100% contribution, then double what you’re currently putting in. If you put in 10K and your company put in 5K, then contribute another 5K. (And if the match comes back, you can still contribute the full 15K– your company is allowed to contribute something like $37,500 on top of your own contributions.)
If you’re already putting in $19,500 each year and have lost the match the first place to look to put in more money is into an IRA, up to $6,000 additional. If you’re able to put in $19,500 to a 401K/403b plan, chances are you are only able to contribute to a backdoor converted Roth IRA because you’re making a lot of money. But if you do make less than the income limits , you can contribute to a regular IRA Roth or Traditional IRA without having do a backdoor conversion.
If you have already maxed out your IRA space, check to see if your company allows Backdoor Roths with their 401K (these are less likely with 403b, since they are a way for high income people to hide said income from taxes, but who knows, maybe the fed has them). If so, you can contribute up to $37,500 tax advantaged in one.
If you don’t have any of these options but you want to protect your future self, think about other places that you can put the money you are losing out from losing the match. Do you have debt (including mortgage) you could pay down? Do you have a high deductible health insurance plan with a health savings account?– That money is tax advantaged twice! If you are planning on paying for your kids’ college– maybe the 529 could use a boost?
The truth is, if you are getting your retirement match cut, you are getting a pay-cut and you need to adjust your spending/savings if you can. If you are in a precarious situation, then you need more money in short term savings even if it means a spending cut. If your situation is more stable, then you need to make up for the future loss from lost retirement savings, preferably in a way that is tax-advantaged.
Have your benefits been cut this year? If so, what are you planning on doing as a response?