Should you ever pass up the 401k match? According to Dave Ramsey, yes when you are focusing on paying off debt. However Dave Ramsey does give the caveat that it shouldn’t be done if you are paying off debt for longer than 18-24 months.
I think passing up a 401k match is crazy. You can never get back the 100% return on investment. It’s the safest investment out there. You save a $1, you get 50 cents or a $1 match. It’s your employer increasing your SALARY!
Plus typically most employers match up to 5%. It’s not a lot of money to not be using towards debt. Also, in my humble opinion, if you still have cable, eating out, entertainment, etc in your budget, you should cut the 401k LAST. Sorry but those other categories can and should be cut first before retirement.
If you really are in a tight spot when you’ve cut everything, then yes pass up the 401k match. However, consider looking for new employment. Because if you need that 5% to pay off debt, how will you scale down your lifestyle to save a minimum of 15% to retirement?
I question the wisdom of not saving for retirement while paying off debt. Besides the math, it’s getting into the habit of saving. Getting used to living on less. How do you go from saving 0% to saving 15%? If it’s about behavior and not math, then the behavior should be implemented immediately.
And of course you can never get back the 100% returns. Not to mention the compounding of interest. But if you have no other way to get money to pay off your debt, then yes pass up the match. But it should be the last thing given up, NOT the FIRST!
5 responses so far ↓
1 Fabulously Broke // Apr 16, 2008 at 7:07 pm
I’m a fan of saving while paying off debt.. hence the retirement savings.
You’re right - it’s hard to go from 0% to 15% which is why I’m training myself now
As for the 401k match, I do the same thing with my company = I match it because to me, 4% is free money , and like you said a 100% investment!!!
In a short time, less than 2 years, I’ve saved a surprising amoney of money with just 4% and a match…
2 Grace // Apr 16, 2008 at 7:22 pm
I completely agree. I’d agree even if there was no match, particularly for those of us > somewhat beyond our twenties. At 59, I have precious little time to catch up on my retirement saving (sheesh! something else I shoulda done during my twenties, and didn’t!). I can’t afford to put it off while I pay off my debts. Yes, it does slow down the debt reduction, but the plan is to arrive at retirement with decent savings AND no debt.
3 Bridget // Apr 16, 2008 at 7:46 pm
Thanks for that post. I’m 23 and was procrastinating on signing up for the 401K because I’m not very savvy when it comes to these things. But you inspired me to get off my butt this week and just sign up for it.
4 Laura // Apr 16, 2008 at 10:30 pm
I completely agree! When we were focusing really hard on paying off credit card debt, I still had 7% go to my 401K. My company matches 100% up to this 7%, and I couldn’t pass that up.
5 Barb1954 // Apr 17, 2008 at 3:24 am
You know I agree with you completely.
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