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Retirement Savings Jeopardized by Early Withdrawals
Posted November 13,2017 by CUNA Economics

Twenty-five percent of consumers resort to tapping retirement funds in financial emergencies.  

“Many Americans are under financial stress—experiencing medical, employment or other shocks, and having insufficient liquid resources to deal with them.  When families turn to their retirement accounts to deal with financial shocks, they can permanently lower their retirement savings,” says Alison Shelton, senior officer of the The Pew Charitable Trusts’ retirement savings project.  

A new Pew Research Charitable Trusts report indicates consumers tap into retirement savings when they are in a financial bind, says an article at planadviser.com.   

In fact, 13% of 5,661 households surveyed used retirement funds to cover a financial upset.  

Pew discovered that more than half of all households will suffer from some kind of financial shock over their lifetime.   

Ways consumers will pay for a financial emergency include:  

  • 78% will withdraw from savings accounts;
  • 49% turn to credit cards; and
  • 25% resort to tapping their retirement funds.

The price to pay when making retirement fund withdrawals is steep for those under age 59 ½, the article notes.  Such consumers will pay a penalty of 10% as well as pay taxes on the money.   

Also, people taking money from retirement funds will usually not be allowed to make contributions to their retirement funds over the term of the loan, and some for six months after the loan is repaid.  

“The median cost of financial shock was $2,000,” the article says.  Typical circumstances for those needing to tap retirement savings are death of a spouse, divorce, or separation.  

Those with only a high school degree were more inclined to make retirement withdrawals than others with a college degree or more.

 

Related

 

Retirees Go Back to Work

Many Make No 401(k) Contributions

Couples Financially Advantaged Over Singles

   

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