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UMKC professor says hold off pulling funds from retirement accounts

Posted at 10:18 AM, Mar 25, 2022
and last updated 2022-03-25 11:59:36-04

KANSAS CITY, Mo — With inflation at a 40-year high and tensions overseas intensifying, many wonder how to protect their retirement accounts.

Nathan Mauck, associate professor of finance at the University of Missouri-Kansas City, said it’s understandable to feel stressed about the future, but he advised people hold off taking money out of retirement funds.

"You don't pull money out of retirement accounts; you stick with the plan,” Mauck said. ”One thing that inflation makes really obvious is, if your money isn't earning a higher rate of return than the rate of inflation, then, in real terms, you're losing money and you’re losing value."

This isn’t the first time inflation has rocked the U.S. economy. Mauck said history tends to repeat itself and, even though stocks and bonds are taking a hit, at the end of the day the stock market will still do better than inflation in most years.

Mauck said inflation is most concerning for people on the brink of retirement, but inflation will even out for those with a long way to go before retirement.

“Higher inflation might mean higher uncertainty, but it doesn’t mean to panic,” Mauck said.

Retirement accounts vary, but pulling money out of retirement accounts can come with hefty penalties.

For many Americans, when investing in a retirement fund a person doesn't pay taxes on the gain. They might also be eligible for a tax deduction when making contributions. However, if funds are pulled, those taxes come due.

“It can be very expensive to pull out of these accounts, and I would really recommend against doing that,” Mauck said.

His advice is to make a budget and keep track of the dollars coming in and out of your wallet. If possible, look into starting a rainy day fund, which works like an emergency account. Mauck said a good rule of thumb is to have three to six months of income in the rainy day fund in case of emergencies.

However, if pulling money out of a retirement account is the only solution, talk to a financial planner before making any decisions.

“You definitely want to stay the course with your investments, stay the course with your retirement savings," Mauk said. "It's not the time to panic pull money out of retirement accounts."