I Make $130,000 and Worry About Layoffs. Should I Stop 401(k) Contributions to Pay Down My Mortgage?

When people start worrying about job security, a familiar question comes up: is it smarter to pause retirement saving and focus on immediate concerns such as keeping a roof overhead?

A recent post on the r/PersonalFinance subreddit comes from a young employee who is considering making extra mortgage payments because he fears losing his job.

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“I’m 28 years old and make $130,000 base + 10% annual bonus. My wife does not work,” the post says. “What I’m struggling with is that I have a somewhat reasonable fear that offshoring + AI will eliminate my position and others like it.”

He asked whether he should direct extra money toward his $342,000 mortgage while he still has a steady paycheck. Doing so, he said, would mean reducing his 401(k) contributions from the maximum amount.

Expert advice: Keep saving and investing

Financial experts say the instinct is understandable, but they do not recommend that approach.

Extra mortgage payments do not reduce the monthly bill. Instead, they lower the loan balance and shorten the term of the mortgage.

That means the strategy would not likely help his family cover basic expenses in the short term if he were to lose his job.

“With such a long runway until retirement, I think that there are other areas to focus on to give him peace of mind,” Hillary Stalker, executive vice president at CapWealth, wrote in an email to Money. “It would be an opportunity cost to him to pay off the mortgage and give up saving for retirement.”

Stalker, who is also a certified financial planner, recommends watching mortgage rates and considering a refinance if a lower monthly payment becomes available.

It is easy to panic after hearing layoffs mentioned in the news or around the office, but that kind of fear can lead to poor financial decisions.

People worried about losing work should resist the urge to rush into extra mortgage payments.

“If someone is uncertain about their job, the most important thing is they have plenty of cash on hand — emergency cash that’s liquid,” says Timothy McGrath, a certified financial planner in Chicago. “Paying something off, to me, doesn’t make sense … when there’s uncertainty, liquidity matters most.”

The Reddit discussion points to concerns about offshoring and the possibility that, if he lost his job, the worker might need to take a much lower-paying role in another field. In that situation, McGrath says he may need a larger emergency reserve than usual. Rather than saving the standard three to six months of living expenses, he suggests setting aside enough to cover nine months to a year of bills.

He should also try to avoid major purchases, trim fixed expenses, and continue contributing to brokerage and retirement accounts, McGrath adds. If he does become unemployed, that cushion could help his family keep up with mortgage payments and cover essentials while they work out a backup plan.