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If offered, contributions to employee sponsored retirement plans can be a huge advantage to meeting your retirement goals. In our financial planning process, the Planning for LIFE experience™,  we encourage our clients to maximize their savings in these accounts. An employer match essentially allows you to be paid over 100%, it's a great opportunity! 

Unfortunately, with the economic downtown, many individuals have been using these accounts to pay off loans and for other expenses. According to a recent Vanguard study, the average withdrawal has been up to one-third of the account balance. Eek! Even more notable is that the withdrawals are not considered hardship withdrawals. You can see in the chart how the number of hardship withdrawals has stayed about the same, whereas, the non-hardship withdrawals have increased significantly. 

The disadvantage of making these early 401(k) withdrawals is interrupting the tax-deferred compounding of the account balance. 

 
Retirement Withdrawals

What are your thoughts about early withdrawal trend? 

 

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