First, Forbes magazine tells us that the average 60-year-old has less than $30,000 saved for retirement. Now, new research from the University of Michigan indicates that the slow economy has prompted many people to use their retirement savings early.
University of Michigan Economist Frank Stafford said the study showed many people are withdrawing from their 401 (k) or other investment accounts for "reasons ranging from out-of-pocket medical expenses to home repairs to mortgage distress."
Researchers found that early withdrawals jumped right after September 11, 2001. Even though they stabilized again, another increase was noted between 2007 and 2009. The survey found that six percent of adults between 25 and 44 were cashing in some or all of their retirement savings. That number jumped to 15 percent at age 59 1/2, when early withdrawal penalties end, even though most people are not actually retiring until around 65 or 66. The most surprising finding was that participation in contribution plans actually went down, from 33 percent between 1999 and 2001 to 30 percent between 2007 and 2009. That means under a third of employees surveyed have any type of retirement savings.
Cause for Concern
Stafford points out that the problem of using retirement funds for short-term expenses is only going to get worse. Companies and government agencies that used to offer defined benefit plans or pensions are now allowing employees to convert to retirement accounts that they control, or they are giving out lump sums in place of monthly pension checks. "If you leave people to their own devices, it's tempting for them to use their retirement savings before they retire," explains Stafford.
You can't change current trends, but you can control your financial decisions and investments. Before you empty your retirement account, think about the long-term implications. Is it possible to borrow from your 401(k) instead of just cashing it in? Do you have other financial options, such as a loan, a home equity line or other traditional means? If you are part of the two-thirds not investing in retirement at all, start now. Talk to a financial advisor about various investment strategies that will help you maintain your standard of living upon retirement.
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Paul Partridge is co-founder of Sage Financial Partners. For a complimentary evaluation of your life insurance protection, contact Paul@SageFinancialPartners.com. Sage Financial Partners is a Registered Investment Advisory firm and member of FINRA and the Better Business Bureau. The information above is not intended to be and should not be considered investment or tax advice.