JACKSONVILLE, Fla. - A report just out says more people are pulling out money from retirement savings accounts just to pay the bills. New data shows one in four workers are doing this.
Jacksonville certified financial planner Titus Pittman said pulling money out of retirement savings is a very short-term solution and will be extremely detrimental later in life.
When enrolling in a 401k, the idea is to not touch that money until retirement.
"I would be cash-strapped and I would have to be in dire circumstances to want to pull it out due to the penalties," one 401k investor said. "And just at this date and age, being so young, I don't want to touch it for any reason."
But a report this week from Hellowallet, a financial advisory firm, finds more than one in four people are dipping into their retirement funds to pay mortgages, credit card debt and other immediate bills.
The report says people in their 40s are doing this most. One-third are turning to these accounts for relief.
Pittman said if this is the only option, take out a loan against it. Don't withdraw from the 401k.
"When you take it outright withdrawal, you have the taxes, as well as the 10-percent penalty for those individuals under 59 1/2," Pittman said. "Even though there's a slight interest rate that you would pay by getting a loan against your 401k, it would definitely have a less impact on your retirement."
New data from one of the nation's largest 401k managers, Vanguard, says since 2008, there's a 12-percent increase in the number of people who took loans against their retirement accounts or withdrew outright.
"Come up with ways you can have some emergency savings accounts," Pittman said. "We advise our clients to have two to three months worth of fixed expenses set aside. Just in case those emergencies happen, you're not looking for ways to tap into your 401ks or other retirement assets."
Pittman said he advises everyone to have a 401k.
As more and more companies are cutting back their pensions and social security, it's tough to say where those benefits will be in 20 to 30 years.
A 401k helps put money away with tax benefits and company matching.
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