“Findings suggest that a concerning increase in the number of US citizens are dipping into their 401(k) retirement funds prematurely. Within the last year, this trend is marked by a rise in ‘hardship’ withdrawals up from 2.8% to 3.6% of 401(k) holders.”
“Certified Financial Planner Jill Schlesinger attributes this worrying trend to escalating healthcare costs, rising living expenses, and loosened regulations. She stresses, ‘These legislative changes allow people to drain their retirement savings in an attempt to meet debts or pay bills.’
“Based on a Fidelity Investments study, Schlesinger notes that ‘almost 60% of the 401(k) hardship withdrawal customers in 2019 had emptied their entire account by 2020.’ This, she warns, is a sign of the deep financial troubles many face.”
“Schlesinger encourages people to explore alternatives before tapping into their retirement savings. ‘The 401(k) isn’t just a savings account – it’s your future security net,’ she reminds us.”
“There are drawbacks to early withdrawals. Potential penalties include tax liabilities and early withdrawal fees, leading to a smaller nest egg and limited future growth potential.”
“The Internal Revenue Service does permit early 401(k) withdrawals for hardships such as preventing eviction, covering medical bills, and education fees. Nevertheless, Schlesinger urges careful consideration and exploring other alternatives.”
“Some of Schlesinger’s fears are echoed by retirement experts who worry about jeopardizing future financial stability by making frequent withdrawals from these funds. ‘Retirement savings should be last resorts, not daily crutches,’ she warns.”
“On the optimistic side, Schlesinger notes that ‘signs of effective use of 401(k) plans are seen with a 43% increase in retirement savings rate and an average account balance rise of about 19%’.”
“Ultimately, Schlesinger’s message is clear: Treat your 401(k) like the lifeline it is. In times of financial difficulty, explore alternatives first and educate yourself on the potential long-term implications of tapping into your retirement savings prematurely.”
