Financial planning requires more than just diligently putting money into a savings account and living a frugal lifestyle. Those who are serious about their financial well-being know that tapping out your retirement savings too early is a bad move.
Data from Fidelity Investments shows that while some people are being smart with their finances and putting money away in 401k accounts, others are actually borrowing against them.
Borrowing against a retirement account can have several negative effects. Those who borrow against a 401k plan, for example, are not only taking money away from funds set aside for retirement, but they are losing out on accrued interest as well.
Fidelity Investments workplace investing president James MacDonald says that people should be aware of all the implications involved with taking money out of a retirement account. Tapping out your retirement savings too early may leave you in a financial lurch down the line.
“We recognize that for some, taking a loan or a hardship withdrawal from their 401k may be their only option because it’s their only form of savings,” MacDonald said. “However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement.”
Your retirement plan can be a life-saver if you’re ever in a financial hardship and need emergency cash. Just keep in mind, that this pool of savings is, in part, already spoken for as your financial nest-egg later on. Tapping out your retirement savings too early is a decision to make with great consideration.