Life’s little surprises tend to be painfully expensive. No matter how carefully you plan and save for a rainy day, sometimes your financial umbrella just isn’t big enough. When faced with a money emergency, some people may ask family for help, use a home equity line of credit, or even pick up a second job. Many Americans also turn to their retirement accounts, which might lead to larger problems down the road.
Retirement piggy banks attract an alarming amount of early withdrawals. According to a report from HelloWallet released last year, more than one out of four households in the country turn to their 401(k) plans before retirement. In some cases, the entire account is drained in an effort to stem financial bleeding somewhere else. Early withdrawals for non-retirement reasons total approximately $60 billion per year, while 401(k) and 403(b) loans account for an additional $10 billion each year.
If at all possible, given your personal financial situation, it’s typically recommended that you avoid raiding your retirement accounts. Let’s take a look at three dangers that come with early withdrawals or 401(k) loans.