Up my 401k contribution???

Question

First off, my employer doesn't contribute to the 401k for our company...boooooooo!!!!

Anyway, I was actually considering reducing my current 4% contribution to 2% and possibly even 1% until the economy turns around (hopefully) in a few years.

While I currently live on a paycheck to paycheck basis & could use the extra $100 I put in now, I'm also 36 yrs old & just started my 401k this year with no other savings in site.

So I was reading that a lot of people are actually starting to take out of their 401k plans due to the recession. While I would like the extra $100 I'm putting in, I don't "need" it. I could actually afford to put in an additional 2% & have my daughter's & my NEEDS met, but shy on "wants".

My question is.... SHOULD I put in that extra 2% now?(remember, my employer does NOT contribute anything!) IS there an ACTUAL advantage to doing it now than doing it in a couple years from now, other than the obvious of putting in a few extra dollars a month now!!!

Answer 1

Yes, put the extra money in.

In fact, you should be trying to put 15% of your money into some combination of 401K and Roth IRAs.

Don't wait for the economy to turn around.

It's a mistake to think "the stock market is down, I want to stay out."

Instead think: "the stock market is down,  There's a sale on Wall Street.  I want to buy some more."

Answer 2

Put as much as possible into your 401k. Always. The magic of compound interest will work best for you  the sooner you start.

Most of us spend a lot more than we really need to, and it's possible to cut a few little luxuries on a routine basis to set us up much better for the long term.

Buy stocks with it though. If you're just getting money market rates of interest, your actual real return will be negative until the Fed starts upping interest rates, giving you a better rate of return and lower inflation.

Cheers.

Answer 3

First of all, people who withdraw from their 401k are fools! Yes, you should contribute the 4% or 6% of your salary to your 401k because you don't pay taxes on the contributions, which is a pretty good deal! There is always a good time to start investing for your retirement, and now it’s especially good time because the investments are cheap. Have you thought about inflation and how much money you will need to accumulate in your 401k in order to be able to retire? Right now, the time is on your side because of compounded interest. For example, when you start investing at age 36, and if you contribute $100 a month, $1,200 a year with 10% return. At age 70, you will have around $328,790. However if you wait a few years, let’s say till you’re 40 y old, with the same contributions and the same rate of return, you will be able to accumulate $219,843. So the 4 years of waiting will cost you $108,947. Do you still want to wait? :-) Good Luck!