You Can Take the Money Out, but You Probably Shouldn’t

Also: 6 Easy Ways to Save Money on Your Home Insurance This Year

͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌  No images? Click here August 15, 2023 Saving for retirement: You put the money in your account and leave it there till the day comes when you’ve declared yourself retired. Problem is, a lot of people withdraw funds decades before their actual retirement. In the industry it’s called 401(k) leakage, and it can happen in a few different ways: Cashouts. You leave your job and withdraw the entire balance. Hardship withdrawals. You take money out for an emergency. (Most employer-sponsored retirement plans allow savers to do this.) Loan defaults. You borrow against your retirement account and don’t repay the loan. Delays. You choose not to participate in a workplace plan or put off the start date for saving. Here’s the drawback for each of these leaks. A cash withdrawal means you miss out on years — or even decades — of compounding interest on your hard-earned cash. If you can’t repay the full amount of your loan when your job ends, that outstanding loan balance will become a distribution. That could mean penalties and taxes. Delaying your contributions has the same downside as a withdrawal. You’re missing out on the chance to save and compound the money over decades. If you have a real emergency, hardship withdrawals should be a last resort after scouting personal loans, borrowing from family and friends, or taking out a loan from your 401(k). This is a decision you shouldn’t make lightly. Sadly, given inflation, among other factors, Americans increasingly took hardship distributions this year. For more, read Sarah Hansen’s story. — Jill Cornfield, deputy editor P.S. If you got this newsletter from a friend, sign up here for email delivery to make sure you don't miss the next issue.

Retirement stat of the week: 80%

The less people have stashed in a retirement account, the likelier they are to cash it out when the job ends. According to a paper that examined participant behavior over nine years, 80% of American workers whose balances were less than $1,000 cashed out their entire balance. For people with $250,000 or more in their accounts, the cashout rate was just 2%.

Retirement 1, 2, 3

Here’s how Americans spend their time and money in retirement. It’s great to get an early jump on saving for retirement. But what if you didn’t? These four tips can help you catch up. This proposed federal bill would shore up women’s retirement security by preventing someone from taking distributions or loans from a 401(k) without their spouse’s knowledge or consent.

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