New data is showing that a larger and larger number of American workers are tapping their retirement savings accounts for non-retirement needs. Numbers are showing that 1 in 4 American workers with 401(k) and other retirement savings accounts use them to pay current expenses. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
The concept of a “retirement plan” was and still is just that. Use the money when you stop working. This can bring about an argument of having access to the money at all. When people need money, do you really think they care about the penalties associated with these accounts? If you are allowing them access, you are granting them a way to potentially ruin the retirement. You can argue and say that it IS their money to begin with, and this is true and valid, but have them put it in the bank instead of in a fee heavy vehicle.
The most common way Americans tap their retirement funds is through loans, which must be repaid with interest. Those who withdraw money face hefty penalties. In most cases, they not only incur a 10 percent federal tax penalty but also pay income taxes. A report due out this week from the financial advisory firm HelloWallet found that more than one in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills. Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief.