Monday, April 6, 2009

Can't stay away from your 401(k) or IRA?

Posted by Lauren Cappelli

By MarketWatch
Talk about a downward spiral. Hundreds of thousands of Americans who have been pink-slipped recently are joining the millions already unemployed in figuring out how to make ends meet.

Yes, many might have severance packages, and some might have a few months' worth of living expenses set aside. But once severance packages and rainy-day funds are exhausted and unemployment benefits fail to cover daily living expenses, out-of-work Americans will likely raid the only piggy banks with any money left in them: their individual retirement accounts and 401(k)s.

Most Americans aren't dipping into those accounts to cover expenses just yet. Many are coping by reining in their spending, according to a Principal Financial Group survey released recently. And some are saving less, according to the 2008 Bank of America Retirement Savings Survey.
The Bank of America survey indicated that 18% of Americans had withdrawn retirement assets prematurely because of the recent economic turmoil. Many had raided those accounts to pay for near-term financial obligations, including credit card debt and mortgage payments. But more than one in five of those had withdrawn money early from their retirement funds because of recent job losses.

"If the economy continues to worsen, these numbers may increase significantly," Bank of America said in its release. "The possibility of many more Americans dipping into their retirement savings could have profound implications for the country's future economic well-being."

Funds of last resort That kind of dipping would also have profound implications on your own immediate well-being. Craig Averill, a retirement-planning executive with Bank of America, suggests that retirement accounts should be viewed as funds of last resort.

Others agreed. "Taking a distribution from a retirement account is one of the least tax-efficient places from which to get the money," said Mark Nash, a co-author of PricewaterhouseCoopers' 2009 Guide to Tax and Financial Planning.

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1 comment:

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