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Ask Dave

You can catch up later

Steve will be losing his job soon, but he's in a unique situation to handle things. Dave advises and congratulates him for doing such a good job with his finances and looking out for his family.

QUESTION: Steve recently learned that he’ll be losing his $88,000-a-year IT job in February. He’s currently contributing to the company’s 401(k) plan, he and his wife are debt-free except for their house, and they have their fully funded emergency fund of three to six months of expenses in place. They’re also cash flowing one daughter’s wedding in December and cash flowing another daughter through college. So, along with a sizable severance package, they’re in good shape. They wonder, though, if Steve should stop contributing to the 401(k) and start stockpiling cash until another employment opportunity comes along.

ANSWER: There’s not much lost between now and February with what you’d actually gain off what you put into your 401(k). There would be going forward, for sure, but you can make that up. You’ve already done a great job handling money, and this isn’t the difference between you retiring with dignity and not retiring with dignity. All this is, is the difference of the bigger the pile of cash you have—including your severance package—the more cool and calm you are during the interview process between now and February.

What could happen is you could get a job making $108,000 and the severance package becomes a signing bonus. I’d go ahead and try to land that second job now. I wouldn’t start it now; I’d just try to land it now to start in February. I think you’re in a high-demand role, and you’ll be able to land something, probably get a raise and probably be able to start whenever you want to start. Go ahead and start doing the interviews now.

To answer your first question, yes, I would stop the 401(k). And that’s just an abundance of caution, because I think you’re going to be fine. Actually, I think you’re going to be more than fine, and I think you’re probably going to get a raise. I think you’re going to land on your feet and then some. But just in case, it won’t hurt to have an extra $10,000 laying around, you know? You can always catch up later. Congratulations on doing such a good job!