KANSAS CITY, Mo. - It is everyone’s goal to retire and live comfortably. But for many, that goal is harder to reach as they dip into their retirement savings to make ends meet.
According to Time and Hellowallet.com , 401(k) penalized withdrawals increased by $24 billion between 2004 and 2010. The reports state people in their 40s are more likely to tap into their retirement and 75 percent cash out due to money management problems.
"It really is losing your job and not having a sufficient amount of money set aside for emergencies,” said Waddell & Reed Financial Advisor David Jackson.
Jackson sees people dipping into retirement money in times of job loss instead of planning for emergencies ahead of time.
"Having a good emergency account set aside gives you a piece of mind knowing you can leave your retirement account alone," Jackson said.
How much can pulling money out of retirement early cost you?
A $10,000 early withdrawal from a 401(k) can quickly shrink to just $6,000 after taxes and penalties, but Jackson points out the long term cost -- a $10,000 401(k) investment earning an annual rate of 10 percent over 30 years can grow into $205,629.
"If you are taking money out that doesn't get a chance to have the impact of compound interest of all those years, you really miss out. You can't get those years back," he added.
Besides falling on hard times, people will take out loans from retirement savings and not pay them back or cash out a savings plan when changing jobs.
No matter what the reason, financial advisors warn consumers that they will take a significant financial hit immediately and in the long run.
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