Feeling Pinched? Sometimes Your 401(k) Can Help
With rents, food prices and child-care costs all rising, coming up with the cash to cover unexpected expenses is becoming more difficult. Even among wealthy Americans, the stock market downturn means plenty of them also find it tough to come up with the cash to pay for things like surprise home repairs or dental work.
When interest rates were low, borrowing money to make up for a temporary shortfall was relatively easy and didn’t come at such a price. That’s changed. Credit-card rates are approaching 20%, personal loan rates are north of 10% and home equity lines of credit can be hard to come by.
For some people, reducing retirement contributions temporarily or even borrowing from a 401(k) may be smarter than piling up high-interest debt. Yes, traditional personal wealth advice directs savers to “set it and forget it” when it comes to 401(k) retirement plans. But while I’m by no means encouraging people to be reckless with their 401(k)s, I do think some of the stigma and taboo around adjusting retirement savings when in financial straits needs to change.
Assuming cash-poor families have already done a budget review and cut unnecessary expenses, dialing back on retirement savings could be the least-painful short-term fix. Remember, there aren’t annual reminders or enrollment periods for existing employees when it comes to 401(k) plans like there are when making elections for health benefits. Most people set a contribution rate when they start a job and leave it there for years. Sometimes external circumstances warrant making a change for a period of time.