Keep Your Hands Off Your Retirement Savings for As Long As Possible

Keep Your Hands Off Your Retirement Savings for As Long As Possible
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If you’re struggling through a tough financial phase, your retirement account may seem like a good spot to get some income quickly. And if you’ve been eyeing your own 401(k) or IRA during the coronavirus shutdown, you’re far from alone: a new Bankrate survey found that 27% of people have turned to their retirement account or plan in recent months.

If you consider only the people who have lost their jobs since January 1, the survey reveals half of them have already dipped into their retirement accounts or plan to do so.

Bankrate found that millennials and people with household incomes of $30,000 or less were most likely to take money from their retirement savings. For those without a lot of options for accessing cash, turning toward retirement savings can look like a lifeline that won’t get you caught up a web of fees or high interest rates.

But those younger savers are the ones who risk losing the most by taking from their retirement accounts now, due to the power of compounding interest, noted Bankrate Chief Financial Analyst Greg McBride.

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We’ve actually talked with McBride about this before: If you take money out of your retirement fund, you need to work to maximize your saving again as soon as possible. If you don’t, you’re missing out on years of exponential growth.

If you need a refresher on the positive impact of compounding interest, take a look at our video:

If that’s enough to convince you to avoid touching your retirement savings if at all possible (and I hope it is), it’s time to find other options for making ends meet.

Ask your landlord, utility company or car note lender for deferred payments. Use a credit card if you can get a zero-percent interest offer. Apply for public assistance. There’s no perfect answer, of course—every method of scraping together funds right now will have its own drawbacks and challenges.

But if you absolutely must take money from your retirement account right now, consider a loan instead of a regular withdrawal. While it should still be considered a last resort, the CARES Act has made it easier to take a loan from your 401(k) and extended the window for paying it back.

Just make sure to create a payment plan to get back on track when your income stabilizes, so you can make up for as much of that lost time as you can.

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