Political news constantly highlights Social Security as not being funded enough (not true, but that’s the line). Pensions — especially government pensions — are not funded enough (true). And 401(k)’s took a hit in the Great Recession, giving many people 40% haircuts to their potential retirement nest eggs in a very short period.

But Ezra Klein makes a very important point about these three financial tools:

Too often, these are three separate conversations, and they’re frequently lashed to other issues. Social Security is usually discussed in terms of the deficit, and Washington brims with plans for cutting Social Security benefits. The conversation over state pensions usually is really about the sustainability of state budgets. And when we talk 401(k)s, we tend to be talking about volatility in the stock market.

But really, these are all the same conversation, about the same problem: retirement security. The late 20th century saw a great shift in risk, in which uncertainty that had been borne by employers and the government was shunted onto individuals.

There are two key components here. The first is that the issue is retirement security, not some part of one’s overall retirement like Social Security or a pension. The second is that the uncertainty “borne by employers and the government was shunted onto individuals.” Let’s take a look at both.

Retirement Security

First, I really like this model for what it takes to retire. When we sit down and think about retirement, we think of our 401(k) or IRA’s done when we leave a company and go to another. Most of us do not have a pension options anymore — Ezra notes that “By 1995, there were more 401(k)s plans than traditional pension plans. Now there are about twice as many.” You can see the trend — your retirement income is up to your ability to save in a 401(k) and invest the money well.

The real issue is what kind of financial security will you have that will enable you to retire comfortably?

To be fair, for most people, this is hard to do. You have to project your Social Security payment, ask for help to get a pension calculation, decide how much you should withdraw from an IRA and then take that and project how many years it will last, and finally look at your savings. Even if you find a cool retirement calculator on the Internet (where you can get totally depressed going through the exercise…), it takes a lot of thinking and research on your part to get to a number to put into a retirement calculator. Much less what to do with the number once you get it.

Yet, doing this process and taking action on the results is critical for taking the right actions to give yourself a shot at retirement security — while still enjoying life while you are doing it.

Uncertainty is now borne by people

This, I think, is missed by most people. There has been a concerted effort to shift responsibility — and risk — to you and your family for figuring out how to get to retirement security. Pensions were simple. You worked at the company and the longer you worked at the company, the bigger the pension. All the risk was on the company to meet the pension requirements.

Now? Pensions are gone — there are 401(k)’s out there and the risk in the portfolio comes from your ability to manage an investment portfolio in the stock market. The risk to the company? Zero; the risk is all on you and your ability to manage money. Where, by the way, we have received a paltry amount of training and need to rely on other people, like financial analysts, to tell us where to invest.

My perception is that most people do not understand that their retirement funding is really all about their ability to manage money in a retirement tool like an IRA and from their savings. I know too many people who retired with their 401(k)’s moved into their IRA’s — and then lost much of it in the latest recession because they didn’t know how to protect themselves in a downturn. Now they are selling houses to cut expenses, trying to find work when their skills are not up to date, and trying to figure out how to make it living in retirement.

I don’t have the answers, but it is a problem. How have you tried to build retirement security?

Related posts:

1. In 2005, we wanted to privatize Social Security
2. Employment security trumps job security
3. Check your retirement financial records
4. Solving the Problem is a Problem
5. 2008: End of Company Retirement Plans Begins

Saving money isn’t easy, especially for something so way out there, like, you know, retirement. Yet the more you save right now, the better position you will be in the future. Compound interest from saving early means something and what it means is more security and choice the closer you get to retirement.

There are a few tricks you can do to add money to your 401(k) and help build your portfolio.

Get the 401(k) company match

OK, so this isn’t a trick. It’s a straight-out “do this” step. If your company is matching your 401(k) savings, you are simply giving away dollars that have no risk associated with them. Yes, many companies have stopped matching employee savings, but most have not. Any time you can earn $50 on your $100 savings investment, it is a good thing.

The deal on company matches is that they don’t go far enough. Your maximum contribution for 2010 if you are under the age of 50 is $16,500. Most of us won’t hit that level with simply being at the company match level of savings. So we need more.

Put your raises to your 401(k) contribution

A simple way to increase your contribution is to take your raise and add it to your 401(k) instead of adding it to your take home income. Again, some companies are not giving you raises, but most are. Taking these raises and adding them to your contribution means you live this year just like last year. But the raises, like compound interest, add up over time to the point where your contribution matches the maximum allowed under the law.

Personal incomes haven’t gone up that much for a long, long time either. So this will not necessarily be easy. It is a question of your priorities. And to be fair, most of our priorities don’t include saving for retirement — which will bite us in the end.

Change your contribution to max your 401(k) with your bonus

If you receive bonus payments as part of your income, you will usually know the amount of the bonus with enough time to change your 401(k) contribution percentage to take most of your bonus. Immediately after the bonus is paid, you change your 401(k) contribution back to your original level.

The Extraordinary Power of Compound Interest drives this home:

For example, if 20-year-old Britney makes a one-time $5,000 contribution to her Roth IRA and earns an average 8% annual return, and if she never touches the money, that $5,000 will grow to $160,000 by the time she retires at age 65. But if she waits until she’s my age (39) to make her single investment, that $5,000 would only grow to $40,000. Time is the primary ingredient to the magic that is compounding.

This takes some work and perhaps a bit of help from your Human Resources department. Let’s just say that adding a $5000 bonus to your paycheck gives you the opportunity to change your contribution from, say, 10% normally to 25% for this one paycheck so that most of the $5000 goes into your 401(k). Now, I made up the 10% and 25% numbers…which is why you need to work through the math to get it right for your situation.

No bonus? No raise?

In the end, you may not have raises or bonuses to help up your 401(k) contribution. In that case, pick a number based on what you can afford and have that additional money taken out of your paycheck towards your 401(k). Maybe it is only $100 a month, but like compounding interest, it adds up over time.

Your savings = your retirement comfort

Pensions are going by the wayside. For all we know, the matching contributions from companies will go the same way. Outside of Social Security, which can give you a base income, all that is left for you in retirement is what you save and how you invest. It starts with getting dollars into your 401(k) account.

Has your company taken away their matching contribution? Are they putting it back?

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Two Hundred Dollars 2 by Surat Lozowick

Check out this guest post on 401(k)’s. Though basic in approach, it goes through the decisions you need to make to manager your 401(k).

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For most people, a 401(k) is an excellent financial tool which helps them save for retirement without having to pay taxes on either their contributions or their investment gains. While investing in a 401(k) is an excellent idea and an efficient way to build long term wealth, not properly managing the account can be devastating and decrease an investor‚s total potential return. To properly manage a 401(k), several steps need to be taken.

How much should you invest in your 401(k)?

The first step in properly managing a 401(k) is to determine how much to invest. Ideally, the investor should invest as much as they can possibly afford to. The investor is allowed to invest up to $16,500 per year on a tax deferred basis. If they are over 50 years old, the investment allowance jumps another $5,000. For those who cannot afford to invest the maximum contribution, they should aim to invest at least 10% of their gross pay into their 401(k). In some situations, an employer will provide their employees with a 401(k) match. Since it is free money, the employee should always ensure they invest to at least the point where they get the entire match.

Investment allocation in a 401(k)

The next step in properly managing a 401(k) is choosing the right investment allocation. When signing up for a 401(k), many investors are thrown into certain investment classes based on their age. The investors then never reconsider their investment needs going forward. Each 401(k) investor should check their investment allocation frequently, and adjust it as they age. As a general rule, the younger an investor is, the more aggressive their investment allocation should be. As an investor ages and approaches retirement, more and more of their investment allocation should be shifted towards conservative investments. This is because in the event the market drops off, the older investor has less time to rebuild their portfolio. Regardless of the age of the investor, it is also always wise to diversify their portfolio and have no more than a third of their investments in any one fund.

Monitor performance in your 401(k)

The third step in properly managing a 401(k) is monitoring performance of the investments. The investor should routinely analyze the performance of each investment and compare it to other investments of similar risk and the overall market. If the investment seems to be falling behind the pace, the investor should consider re-allocating a portion of their investment into a more historically successful fund.

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Produced by Victoria of Ratelines.com, a financial portal of information on money market rates.

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Here are the five areas I look at:

Decide how to get debt to zero

Paying outrageous interest rates — even when you have perfect credit — is just throwing money at banking executive bonuses. When banks are getting money at zero percent and you are paying 13.99% or higher interest on your credit cards, it is a good profit — for the banks. You carry all the risks for your credit rating if you don’t pay on time and they make mafia-like profits. What could be better?

Now, you might not get everything to zero in a year. But you should decide which debts you have to get to zero so that your focus starts out right in the new year.

Decide how much to contribute to savings

In case you didn’t notice, it is taking a LOT longer to find a job in this jobless recovery. And the risk of layoffs is still very high. The only buffer you have is the savings you have stored away for the layoff day.

I have consistently recommended having one years take-home pay in a savings or liquid investment account. This includes whatever you contribute to your 401(k) account as part of take-home pay as you will need COBRA if you get laid off and the 401(k) amount could equal a great amount of the COBRA payment.

One years take-home pay sounds like a lot. And it takes discipline to get there. But if you get laid off, one years take-home pay keeps desperation away. Obviously, you can’t get one years take-home pay in the bank in one year. So figure out what you can do to get you further along the savings path.

Decide how much to contribute to your retirement plan

Retirement contributions are great over time. The key is…over time. If you don’t contribute anything to a retirement account when you are on your first job, you don’t get to use the greatest amount of time to compound your investment. Pensions, you can assume, are a thing of the past so all of your retirement will come from your savings, with company matches, plus your investment actions.

If you are not at the company match level, shoot for that first. If you are, figure out what it would take to max out your contribution and make the next step to get there.

If you are fortunate enough to get a raise for 2010, consider just moving it right into the investments in your 401(k). It could be the difference to getting you to your next level.

Pare down your company stock holdings

Some 401(k) plans match company funds with company stock. ESOP’s allow you to buy company stock at a discount. Bonus plans pay you in vested stock options or restricted stock that vest over the course of three years. Before you know it, half your retirement or other savings are in your company stock — a huge risk.

Now, I really thought after Enron went down the tubes — taking along their employee’s retirement dollars with it — that no one would have too much company stock in their portfolios.

I was wrong.

I personally know far too many people who had all their retirement savings in Washington Mutual stock and watched the stock go from $42 a share all the way down to 16 cents a share. Tens of thousands of dollars, in some cases hundreds of thousands of dollars, gone. You cannot make that amount of money back in any reasonable time. Having too much company stock is just asking for financial trouble, especially given how many companies are going belly up in this recession.

I personally never had any company stock in my 401(k). I sold the restricted stock I had whenever it vested. The same thing with ESOP stock holdings; the minute I could, I sold it and took the difference in the lower buy price to the current price. That position is a bit extreme, but people think they know what is really happening in their company and hold on to company stock way too long when the truth of the matter is they really don’t.

Determine your investment strategy in your IRA and 401(k)

Traditional investment advice will tell you that you can’t be a day trader and still hold another full-time job. I’d agree with that. Traditional investment advice also says you should have a diversified portfolio to balance risk in your investments (which failed miserably with the free-fall stock market of 2008 to 2009…).

But you can’t hold all your marbles in one investment device. So this is the time I reallocate the percentages of my dollars going into the 401(k) investments to the various funds offered. Want to have money going to your developing nation fund? What is the percentage you want? How about the percentages going to large cap funds?

This week is where I decide the major changes to these funds for the coming year.

Your finances give you security

The biggest investment engine you have is your ability to produce work for pay. But having a secure job is an oxymoron. There are no more secure jobs, just work to be done. If we are going to become Cubicle Warriors, we need to get our personal finances right so that the times between work allow you to make the right decision about the next job to take. These five steps get you going in the right direction.

Related posts:

1. Your personal finance safety net
2. How personal finance is career management
3. 4 Ways Career Management is Personal Finance
4. Personal finance excellence is now a required Cubicle Warrior skill

Right now, credit card companies are all upgrading their credit policies. Failure to read the fine print means you can get yourself into a penalty phase on your credit — and that will hit your credit report making it more difficult to get the fabulously expensive credit you get right now.

Just now, I received an update from American Express on their terms. Now, I’ve been an American Express customer since 1978 — yes, 31 years — and I’ve never had a balance nor have I ever been late. Yet, this is my new version of credit from them:

The standard APR for Features is the Prime Rate plus 11.99%…The Penalty APR is the Prime Rate plus 23.99%.

Of course, they calculate “the default penalty rate is 1/365th of the APR rounded to the nearest one ten-thousandth of a percentage point.” (Emphasis added…). Let’s get every penny we can.

But even though I’ve been a long-standing customer, they are modifying the terms of my card so that:

We reserve the right to deny any request for authorization for a Charge, even if your Account is current and not in default.

So I’m not going to reveal my credit score here to the world. Let us just say that most people would seriously trade their score for mine. But this is what passes for credit for consumers in a time where we bail out banks with taxpayer money.

American Express is not alone. This also happened earlier in the year with Bank of America, where I haven’t even charged anything on their card for over a year because of their outrageous interest rates even though I’ve had that card for a very long time. The killer is that closing accounts and opening new ones to take advantage of credit card company offers — and giving us some relief on interest payments — is now viewed as weakening your credit score.

Yup, you can’t switch because it makes your credit score worse. But you can’t charge anything unless you want to pay 12% on top of prime. And hope and pray you don’t miss a payment by accident or you’ll hit 24% plus prime (30% interest anyone??). And that’s assuming the company will even authorize a charge even if you are current and always have been.

Seriously, the mafia never had it so good.

Related posts:

1. Personal Brand Management for the Cubicle Warrior
2. 5 personal finance actions to do before 2010
3. 4 Ways Career Management is Personal Finance
4. Your personal finance safety net
5. How personal finance is career management

Here’s the basic thrust of Where Personal Finance and Career Management Meet:

Good career management stems from a foundation of good financial management. Career freedom and financial freedom begin with effectively managing our money. Which leads me to our other big problem: Most of us don’t know how to manage our money. As a result, we get stuck in jobs we dislike just so we can pay the bills, and we think we have no other choice but to work our pants off for a living.

Let’s offer up some reasons personal finance is career management.

Personal finance manages your attitude

When you have managed your money well, you are not desperate about keeping your job. This has a significant impact on your attitude at work. Desperation puts our career on defense instead of offense. We’re more concerned about keeping our job than we are doing our job.

When we are in a position of keeping our job instead of doing our job, the probability of doing poor work significantly increases. Which, of course, can directly lead to losing your job.

Personal finance helps keep your job options open

Opportunities for jobs come from many sources. When we manage our money well, we don’t have the big bills to pay, big mortgages to keep and big lifestyles to support. Instead, those that manage their money well can have an offer presented to them and not worry about the current bills and the impact a new position would have on them.

You can move across the country for the right opportunity because you’ve managed your money well.

Personal finance levels the layoff playing field

When you manage your money well by having few liabilities, your risk of being hurt by a layoff is reduced because you need less money to live on while laid off. I’ve also consistently advocated having one year’s take-home pay in the bank. The reason? When you don’t have to worry about paying your bills for one year, it gives you the time you need to adjust to the layoff and enough time to find your next gig.

Learn to manage your money

I’m not a financial consultant and it has taken me a long time to learn about money management. But your focus should be on limiting your liabilities, increasing your assets, and getting to one year’s take-home pay in the bank. Making progress on those money goals will give you peace of mind. In today’s economy, we all need that.

Related posts:

1. 4 Ways Career Management is Personal Finance
2. Your personal finance safety net
3. 5 personal finance actions to do before 2010
4. Personal finance excellence is now a required Cubicle Warrior skill
5. 30 Career Management Tips — Provide Personal Communication

For those who are already laid off, the mission is clear: find another job. For those who stay, nothing is clear. And you can only live with ambiguity for so long.

Reduce job stress through a practice layoff

One of the (many) ways to reduce stress is to do something proactive about that which stresses you. Even small steps that allow you some control over your circumstances will help.

Practicing for a layoff is not a small step — it’s big. But worth it. Simply do this: pretend you are laid off starting tomorrow. What steps would you take right now to ready yourself and your family to live on unemployment, severance and your savings? Then go do it.

What would you pare back? What debt would you get rid of right now? How would you change your food shopping habits, cable or satellite packages, Netflix accounts and other discretionary income? How much will COBRA cost? How much income will you get from unemployment insurance? How much take-home pay do you have in the bank right now to cover expenses? How long will it last?

Pick an expense level to drive to and then practice being at that level for two months to see what other items you missed. Put a plan together, make all the changes, and then live to your planned level of income and expenses for two months.

Benefits to practicing for a layoff

Now, let’s be clear: this practice will be stressful — but not as stressful if you were doing this under the gun of a layoff that already happened to you.

But practicing will give you benefits:

1. You know how long you can survive. After two months of living at this level, you will know how long you can survive if a layoff happened right now. You may not like the answer, but you will know. Known things are better than the anxiety caused by unknown things.
2. You will miss expenses. You will discover what you didn’t take into account over the two months from your practice plan. This is important in that capturing more unknowns and making them known allows you to plan for the now expected expenses you missed on your initial plan. This will give you greater peace of mind.
3. You will discover your obstacles. You will have the ability now to see where you need to focus your income to meet your plan. Do you need to  increase the amount of take home pay in the bank? Is it reduce debt? Reduce more expenses? The two month practice session will show you what is blocking your ability to live on income and expenses that make sense.
4. You involve your family without the stress of loss of income. Look, losing a job is tough on your family. But, if you have gone through the practice session without having lost your job, the process is now not threatening and doesn’t involve all the emotions that tie to making the living adjustments. It’s practice. Having gone through it once means if you do get laid off, your family will have had the practice. It makes a bad situation easier.

Now, you may come out of this practice realizing you are not ready for a layoff. But at least you should now know — and your family knows — what needs doing to get you ready for a layoff. I’ve always advocated having one year’s take-home pay in the bank. A whole year. Nothing beats anxiety — or desperation — like money in the bank. A practice session will tell you what needs doing.

If you do get laid off, you will go through many emotions (as described in How to survive a job layoff). That’s expected. But practicing for a layoff, completing your plan to get your finances right and then getting to one year’s take-home pay in the bank means you at least won’t have to worry about caring for your family, paying your bills and keeping your home. And reduce your job stress thinking about a layoff.

A layoff is in your future. Layoffs are in everyone’s future. The Cubicle Warrior knows this and is ready.

Have you ever practiced for a layoff? What did you find out?

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Personal finance competence helps psychologically

Living from paycheck to paycheck is fraught with risk. Let’s talk about stress. And despair. When people are under stress, they are not as open to opportunities and are less creative. Desperate people make necessary – but stupid — choices. Especially stupid choices with their career. The high-performing business analyst becomes the dishwasher. The middle manager becomes the Wal-Mart greeter.

That is not a knock on either dishwashers or people that work at Wall-Mart. But what happens is the high performing person changes what they do, having a significant affect on their skills, mind-set, and capacity to move forward. It is tough to get perspective when one is feeling desperate.

Personal savings help ride out the storm

In case you didn’t notice, we’re in the middle of a hurricane in this recession. This one is one of the longest recessions since the Great Depression and shows no signs of ending. Unemployment continues to rise and the U6 measurement of unemployment – the one used in the 1980′s – is close to 15%. Finding a job in this environment isn’t easy – and takes a lot longer.

Having a three or six month emergency fund is far better than most – but not near enough to keep stress and desperation at bay. A year’s worth of take-home pay in the bank goes a long way to salve the pain of not having a job.

Getting your personal finances right puts your career on offense

Right now, most people are playing defense with their career. They are hoping to not get laid off, keep their job and keep their health insurance. That’s understandable. But part of what I teach in How to survive a job layoff is that now is a great time to stop playing defense with your career and go after what you want to do. There is opportunity in this ugly environment simply because of the churn. Yet, if you don’t have your personal finances in order, you are less able and willing to take the risk of getting your career on offense.

Paycheck to Paycheck

So how much take-home savings do you have right now in the bank? MarketWatch notes that:

MetLife released a study last week showing that half of Americans claim they could not go a month without a job — roughly two paychecks — before failing to fully meet their financial obligations. More than one-in-four said they could not make ends meet for two weeks if they lost their job.

Discover’s monthly U.S. Spending Monitor study found that consumers are increasingly anxious. Just 47% said they had money left in February after paying bills, down from 51% who said the same in January. Moreover, the percentage of people who fear they’ll fall short in the next month was higher.

These numbers, I think, reflect how difficult it is to save and how vulnerable our houses, credit ratings and family stability are. Yet, if you distinguish yourself with a year’s take-home pay in the bank, the numbers also tell you what a significant advantage you have in this difficult environment. Conquer this challenge.

What’s in your bank account?

Related posts:

1. How personal finance is career management
2. 4 Ways Career Management is Personal Finance
3. 5 personal finance actions to do before 2010
4. Personal finance excellence is now a required Cubicle Warrior skill

What the short article did not do was explain why I use these indicators to help me understand when the economy will get better. My viewpoint on the timing for recovery focuses on when employment will get better. We’ve seen ugly job losses and many are wondering how they will be able tell when the economy will get better.

The charts are good, but here is a non-economist view of what needs to happen to make employment better.

Higher employment comes after the economy is better

The unemployment rate will continue to rise well after the “bottom” of the recession. Employment is one of the last indicators of improvement in the economy. So while the stock market will recover and businesses too, people will still suffer from high unemployment rates. My personal opinion is that employment won’t get much better until 2010. It is one of the reasons I advocate having one-year’s take home pay in the bank as a buffer to poor employment conditions.

The reason employment won’t get much better has to do with housing prices, family debt, and the willingness of banks to lend money.

Housing needs to stabilize

This recession is fueled by the housing bubble that burst. You are all aware of the statistics that show housing prices coming down, foreclosures up, and people being “upside-down” in their mortgages where the mortgage is more than the house is worth.

Stability in this market means housing prices get back to the historical mean where housing price increases matched personal income increases. That relationship ended in about 2001 with low, low interest rates and caused the bubble.

Once prices stabilize, sometime in early 2010 in my opinion, people will still be significantly under water with mortgages taken out in the last several years. Total flexibility for homeowners won’t happen until people can sell their homes without a loss. Consider people offered a new job out of state – they can’t move right now because the job offer can’t make up for the loss in housing that would require them to come to closing with money. Note that breaking even at closing still means no down payment for another house in the new state.

“Stabilize” doesn’t mean a one month change like we saw in the housing starts today; we’ll need to see multiple months of improvement to see the trend.

The numbers I look at for this is the New Home Sales, Housing Starts, Existing Home Sales, Existing Home Inventory, Home Foreclosures, and the Case Shiller House Prices charts, mostly courtesy of Calculated Risk.

Family debt needs to drop

For years, people used their home equity as a financial ATM. The “savings rate” in America went to zero as we assumed housing prices would continue to rise and we could just refinance our way to a different lifestyle. That isn’t the case anymore. There is no equity in our homes to use as an ATM and the result is we need to live within our means and have savings to carry us over a rainy day. Or a rainy year.

As a result, for the first time in years, the savings rate in America is on the increase. While some pundits complained that middle class tax cuts will not “stimulate the economy” (and I was one of those critics), I now believe the tax cuts will help Americans get their own balance sheets in order. This is because the tax cuts will mostly go to pay off debt and increase savings. If we can get our balance sheets in shape faster, it will help get spending back into the economy.

Consumers have 70% of the economy through spending and any cold there is devastating to the health of the economy. Watching retail sales tells us how about consumer spending. Spending fell off a cliff in December, but January stabilized roughly with December’s cliff dive. Again, one month a trend does not make.

The charts I look at in this area are Retail Sales, the US savings rate, and the debt ratios on household debt.

Credit needs to open up

Credit and lending is much better now than in the fourth quarter of 2008 – but still twice as bad as normal. So your improvement here is great, but not relevant to most people – and businesses — when it comes to loans. Businesses need loans to finance receivables or inventory. Without these types of loans, businesses can go out of business in a heartbeat. Yet, that is the situation most banks have put businesses in – companies with virtually no debt don’t need banks in this environment and will be more successful than businesses with debt.

Even banks are loath to lend to each other. When they do, the rates they charge are about twice as high as normal. All of this is because the loans on the banks books are opaque – we can’t see the real value of the portfolio. That increases risk.

Then, when the value of the portfolio drops, banks need more capital – read “money” – to keep them afloat. That results in less money available for loans to businesses and consumers. This is why moving money to bailout banks doesn’t necessarily translate to lending – they need the bailout money to preserve the capital requirements. Frustrating, to be sure.

To evaluate how free and easy credit is, I turn to LIBOR (London Inter-Bank lending indicator), the A2/P2 rates for commercial paper, and the “TED Spread.”

It is not necessary to understand what each of these indicators mean, just that the lower the number, the less risky the lending environment.

Conclusion

We’re in tough economic times. But you will see the signs of stabilization and economic recovery if you watch these three areas for improvement. Without stability in housing, family debt reduction and banks willing to lend, employment won’t get better any time soon.

Now, I’m neither an economist nor a whiz-bang financial planner. But, I need solid information to help guide my personal financial situation. These are the indicators – as my newsletter subscribers have seen – that I use to guide me as to where we are in this economy.

Related posts:

1. When will the economy get better?

Here are three reasons to keep contributing – and one reason you might stop.

401(k) has company match

Without going crazy on percentages, if your company is contributing a company match to your 401(k) contribution, it will most likely be the largest gain on your money in your portfolio. Even in the greatest bull market, the company return on your contribution will most likely be the biggest return on your investment. Now, in these tough times, many companies are starting to pare back or “temporarily” remove the company match. For companies, it is a direct expense saving to cancel the contribution. Of course, they don’t offer pensions anymore, so this is a kick in the teeth for savers.

If your company does a company match, you should contribute – it will be the most money you will make on your investments this year. Especially this year.

401(k) is tax deductible

Taxes are a fact of life, but 401(k) plans are the perfect Cubicle Warrior tax avoidance choice we have. All the money you place into your 401(k) plan is deducted from your earnings up to the limit of the contribution. This is traditional 401(k) plans; Roth 401(k) plans have contributions taken after taxes.

401(k) can go to cash accounts

One of the misconceptions about 401(k) plans is the money has to be invested. Not for most plans. Most plans have a “money market” alternative for you to park your money in while the market tanks. You can go to your set-up pages in the plan and change your contribution from whatever mutual fund or bond funds you may have to a money market account. Make sure you get the company match to go into cash as well if this is what you want to do. Putting your money into the 401(k) money market account preserves your contribution. Just because the market is tanking doesn’t mean you need to put in $100 to only lose $20 of it in a couple of months. And just remember, in 2005, some wanted to privatize Social Security. Good that didn’t work out…

I’m not a financial adviser, but these are common sense reasons to put money into your 401(k). But there is also a good reason to NOT continue your contributions. That reason is you believe you will be laid off by your company and you want to build your cash reserves. I’ve done that when I’ve been told of a layoff, but I have usually held on to the contribution until then. But some families are financially stressed and having the contribution as part of more accessible savings makes some sense.

Just make sure you save the money. No good pulling your contribution to your retirement and then blow the contribution on something trivial.

Having savings and managing your 401(k) helps you survive a job layoff. Managing your finances is critical to your emotional well-being in case you are laid off. There is a lot to be said for money in the bank in this economy.

How many of you have had their company match removed from the 401(k) contribution?

Related posts:

1. 401(k): Getting to cash without the penalty