Keep Your Hands Off Retirement Savings for As Long As Possible
If you are going through a difficult financial period, your retirement account may seem like a good place to generate income quickly. And if you’ve watched your own 401 (k) or IRA during the coronavirus outage, you’re far from alone: a new Bankrate study found that 27% of people turned to their retirement accounts or plans in recent months.
If we consider only people who have lost their jobs on January 1, the survey shows that half of them have already invested in their retirement accounts or are planning to do so.
Bankrate found that millennials and people with a household income of $ 30,000 or less were the most likely to take money out of their retirement savings. For those who don’t have a lot of options for accessing cash, turning to retirement savings can seem like a lifeline to keep you from falling into a web of commissions or high interest rates.
But these young depositors are the ones at risk of losing the most by withdrawing from their retirement accounts due to compound interest, said Greg McBride, chief financial analyst at bank rates.
We’ve talked about this with McBride before : if you take money out of your retirement fund, you need to work hard to maximize your savings again as soon as possible. If you don’t, you will be missing out on years of exponential growth.
If you need to be reminded of the positive impact of compounding interest, watch our video :
If that’s enough to convince you to avoid touching retirement savings, if at all possible (and I hope so), it’s time to find other options to make ends meet.
Ask your landlord, utility, or car lender for a deferred payment. Use a credit card if you can get a zero interest offer. Apply for government assistance. Of course, there is no perfect answer – every fundraising method right now will have its drawbacks and challenges.
But if you absolutely need to withdraw money from your retirement account right now, consider a loan rather than a regular withdrawal. While this should still be seen as a last resort, CARES has made it easier to get a loan from your 401 (k) and has increased the window for repaying it.
Just make sure you put in place a payment plan to get back on track when your income stabilizes so you can make up for as much of the time lost as possible.