Loyal LearnVesters know that we consider a retirement account to be sacred. Money goes in and it doesn’t come out until retirement, when Social Security won’t be enough. So understandably, our hearts are broken to hear that American workers are tapping into their retirement accounts to cover their present expenses.
Fidelity Finds Early Withdrawals Increasing
CNBC reports that Fidelity (which runs 401(k) plans for 11 million workers) has seen an increase in the last year’s withdrawals from retirement accounts. To encourage saving, early withdrawals are often penalized through taxes and fees. But 11% of the 11 million—that’s about 1.2 million people, for those without calculators at hand—were undeterred. Fidelity has seen that finances tend to strain during the second quarter, as parents seek funds for college tuition, and this pattern supports that: The withdrawals are most common among workers ages 35 to 55.
Accounts Falter, But Contributions Remain Steady
This retirement account, the 401(k), isn’t as solid as we would like to see. Now that employers are moving away from “defined benefit” plans (for example, pensions), and toward “defined contribution” plans like the 401(k), it turns out that these U.S.-equity-based funds are faltering along with the rest of the economy. Fortunately, it isn’t scaring away the masses: Fidelity noticed that the average salary percentage saved has remained from the first quarter at 8%.
A Retirement Account Isn’t A Resource
Don’t jump off the same bridge! Obviously, we cannot fault people for suffering in this economy, but your retirement account should be your last resort. It’s called a retirement account for a reason: It’s meant to finance your retirement! Otherwise, it would be called an emergency fund or a savings account. We’re big fans of minimizing our living expenses, but we know that’s not always enough. Just give us this: Keep contributing and do your best to keep that retirement account pristine—you’ll be glad (very, very glad) later.
Tell us in the comments: Do you think a 401(k) will be enough to finance retirement?