How to Manage Workplace Retirement Contributions in a Recession
This post may contain affiliate links. Please read our disclosure for more info.
I thought I would take this time of market uncertainty to discuss personal finance topics that pertain to how my family is treating the COVID-19 pandemic.
First and most important … we are trying to stay healthy and safe. My kids won’t go back to school now for at least 2 months … likely through the rest of the school year. And I am teleworking full time now for my job.
I just want to say that I feel very fortunate to have the opportunity to telework. I promise that I won’t get into politics or anything else health related to this pandemic. I plan to keep these posts just about our personal finances.
So for now … I’d like to cover things we are doing and NOT doing during this health crisis … that has turned into a financial crisis as well.
Today I’d like to share my plans for my workplace retirement accounts.
My Workplace Retirement Accounts
I have two different workplace retirement accounts.
The first one is a pension that requires a mandatory 6% pretax withdrawal. So every time I get paid, the first 6% immediately is taken out for my future pension. My employer also contributes a percentage portion of my check to add to my pension … which requires a certain number of years to vest.
In addition to a pension … I also invest in an optional 457B pretax account. This retirement savings bucket is not required … so I could make changes here if needed.
Below I have provided further details on my plans for workplace retirement contributions as a result of the COVID-19 crisis.
Pension Payroll Deduction
Assuming everything goes well … my plans are to one day retire from my current job.
I probably could have made more money somewhere else … but what I lose in potential salary I gain in job security, benefits, and yes … a pension.
Every time I get paid … 6% of my earnings is the first thing to come out before taxes. In addition, my employer contributes a percentage of my earnings to my pension.
The only catch is that I will need to stay a certain number of years in order to be fully vested with the employer portion. My contributions are 100% mine … no matter when I leave.
So even if I wanted to make changes (which I don’t) to my pension contributions I wouldn’t be able to. That is a good thing in my situation. It forces me to save … no matter what. And retiring with a pension income stream is part of our financial independence plan.
As long as I stay employed at my current job through the COVID-19 crisis … there will be no changes made to my pension contributions.
457B Plan Deduction
I have been investing in a 457B plan through my employer for almost 3 years now.
These are pre-tax payroll deductions that are automatically taken from my paycheck every time I get paid. And 100% of these contributions are from my check … there is no employer match on my 457B.
At the time of this writing, my investments in this plan are down by (31.65%) for the year (almost 3 months). That is a huge decline … but not really much of a suprise considering the overall market.
Since last year (2019) … my goal has been to max out this account for the year from payroll deductions at work.
In 2019, I maxed the account out at $19,000.
Now in 2020 … my goal is to max the account out at $19,500.
Note – the maximum contribution limits increased by $500 between 2019 and 2020.
There is no plan to change my contributions to this plan … assuming I stay employed during this economic pullback. So twice a month, I will contribute $815 pre-tax from my paycheck.
The downside is that I already contributed $4,075 this year … which those investments have taken a pounding.
However … the upside is that the remaining $15,425 of investments for the remainder of the year will likely be bought at a discount.
That is the big upside of dollar cost averaging. I am basically spreading my investments out over the course of 12 months (or 24 equal payments … except for the last payment in December will be a little lower).
I strongly encourage you to follow this plan for your retirement accounts right now. Of course, this assumes you are still working and you feel your job is safe.
The most important thing now is staying afloat and keeping your bills paid (like mortgage, food, etc.). But if you can afford to continue contributing or start contributing to a workplace account … it will likely pay big benefits in the future.
I just want to caution though that you MUST have an emergency fund available if you choose to max out your retirement savings accounts right now. What works for my job and current finances may not be the best advice for your situation.
Staying the Course
As I mentioned earlier … what works for my job and personal finances may not be the best option for you right now.
I feel that I have a mostly stable job as of now (that could change) and have no plans to change up my workplace retirement contributions at this time. If at any point I feel that my job could be cut or our finances change … then I would revisit our contributions.
Looking at the market … I would have likely increased my contributions even more in the current economic climate. However, since I am already maxing out my 457B plan in 2020 and using dollar cost averaging … we will use any extra funds to invest in other accounts … like my Roth IRA and our taxable brokerage accounts.
My first priority is to make sure our family can still cover our basic monthly expenses like our mortgage, utilities, food, and transportation.
As long as my job remains secure … we can continue to max our my 457B contributions each paycheck while allowing my pension contributions to be taken as well.
I believe that by living a frugal lifestyle for several years before this latest crisis has set us up to continue investing in the market downturn. Since we were already planning to max out my workplace retirement accounts in 2020 … there really is nothing to change so we are staying the course for now.
What are your plans to invest in retirement accounts during the COVID-19 pandemic? Are you increasing your contributions or playing it more conservative?