I saw the above photo recently on Facebook. I have heard this from other sources recently also. Twenty five percent of Americans are withdrawing from their retirement accounts to pay everyday expenses such as mortgage, credit cards, and groceries.
There may be emergencies that cause you to need to withdraw money from your retirement account. Read the 7 reasons not to withdraw form your 401k to make sure what the consequences are before applying for a early withdrawal.
You need to read the fine print so you what the extra costs are and when the loan needs to be paid back. In most cases, if you get laid off or leave your job you have only 60 days to pay back the outstanding 401k loan. If you are younger than 59 ½ you may be assessed with a 10% federal tax-penalty on the “withdrawal amount”.
When withdrawing money from the account you losing the potential growth and compounding of that money. Even though you pay back the loan, you will still not have as much as you would have without withdrawing the money. It is important to start investing as early as you can to take advantage of the power of compound interest.
It is important to do extensive research when considering withdrawing money from your retirement account.