It appears that the Obama Recovery has not yet hit Americans who are saving for retirement. A report came out yesterday that Americans are continuing to raid their 401(k) retirement accounts at an alarming rate to just pay bills. What these people don't seem to understand is that if you take out cash from your 401(k), you not only have to pay that money back, you will also pay a 10% penalty and also pay taxes on that borrowed money. So, in reality, you are losing money since you must pay a 10% penalty for taking that money out. Suppose you take out $10K to pay off bills. You not only have to pay back that 10K, but you will pay an additional $1000 in penalties for doing so. Then you also have to pay taxes on that $10K. You are actually penalizing your retirement account by raiding that 401(k). That is less money for you to live on at your retirement age. Guess what? The cost of living won't go down. So, you will have less and less of a nest egg to live on when you retire. I understand the temptation to take out that money to pay off lingering bills such as credit cards. But, that is something you need to take care of minus the 401(k). Financial experts are warning Americans to avoid the temptation to raid that account because it winds up costing them far more in the long run.
If you think, "Well, at least, I still have Social Security." Don't bet on it, even if there is still a Social Security payment when you retire (which appears more and more doubtful for the Millennial Generation). Most people depending on Social Security find out how short-sighted they were once they get retirement age. I realize that bills such as that car payment is a heavy burden now. But, imagine the burden of paying bills when you are retired and making far less money. Raiding that 401(k) will seem even more dumb than ever. I live comfortably since I resisted the temptation to raid my retirement plan. It was something similar to the 401(k), but not actually a 401(k). It was a government sponsored plan. There was an old car parts commercial that stated, "You can pay me now or pay me later." If you are raiding your 401(k), you will definitely pay later and more than you ever expected.
***I'm going to take off a couple of weeks or so. My next post should be on March 25th.