When you default on a loan or change jobs, you’re killing your 401(k)

If you want to live comfortably in retirement, leave your savings alone.

The Society for Human Resource Management says employer-sponsored retirement plans are dying because workers are taking out loans without paying them back, or leave a job without taking their retirement with them.

When the time does come for retirement, workers won’t have enough money to last them through their golden years, the Society says. Because many employees are invested in their short-term futures and not their long-term ones, they may not realize they are hurting themselves.

“Employees may tap into these assets as a last resort to pay medical expenses or to avoid eviction from their home, for example,” SHRM says. “Other employees may see these savings as an easy way to pay for weddings, cars and similar large expenses.”

It seems that workers don’t realize that taking money out of their retirement also hurts them now. In-service withdrawals — or when a person takes out their IRA money before they retire — has penalties for early withdrawals (which is before 59 ½ years of age). SHRM notes more than one-in-four workers have had an early withdrawal, typically because they can’t manage their budget.

“What makes leakage so frustrating is that employees lose a large chunk of their retirement savings to taxes if they withdraw it before they reach age 59½ or become disabled,” SHRM says. “The deficiency becomes even greater over time, given the loss of compounded annual growth on the withdrawn amount.”

How to stop stealing from yourself

For the lucky group that does get a work-sponsored and matching 401(k) plan, there are a few ways you can avoid messing it up. Your future self will thank you later.

SHRM suggests changing your plan so you can’t take money out of your account. Eliminate the very notion that you can use your retirement money before you retire. Your budget should never mention using your retirement money, even for emergencies. Remember: It’s for retirement. You should have a separate emergency savings account.

Take advantage of financial assistance from your workplace. There are some companies that provide really fantastic one-on-one advice for their employees. Find out if yours offers financial assistance in any form and if they don’t, see how they can start. The more involved you are in your company’s future, the more they will be involved in yours.

If and/or when you leave your job, remember that if you don’t take your IRA or 401(k) money with you, then it stays in limbo — not with you and not with your company. It’s your responsibility to move it to an individual retirement account or roll it over to your new job’s setup.

If you’re in a real bind and can’t find any other ways to get some extra cash, see if your job offers emergency loans that can be paid back with a payroll deduction, where you pay back your employer by taking home less in paychecks every week.

Wait, there are people with retirement money?

It’s hard to even realize that there are people that have money stashed away for their golden years because the world is running out of retirement money.

Most everyone knows this because Americans are planning to work through retirement since they don’t believe they will be able to afford living without earning an income. It’s unfortunate because once Americans get older, they always wish they had started saving more and sooner. It’s almost always because we say we care about retirement but don’t really care about retirement.

Meet the Author

Dori Zinn

Dori Zinn


Zinn is a freelance journalist based in Fort Lauderdale, Florida.

Budgeting & Saving, Retirement

401k, income, IRA, save money

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Article last modified on August 14, 2017 Published by Debt.com, LLC . Mobile users may also access the AMP Version: Borrowing Money Now Hurts Your Retirement Later - AMP.