Ideally, your retirement savings grow and grow untouched in the process of accumulating a substantial nest egg to support you during the years when you are no longer working. Sometimes, however life gets in the way, and we unfortunately start to view our retirement savings as a bail-out of other financial stresses. There are several reasons why Americans tap into their retirement savings early, but there’s one that’s more common than all the others.
According to GoBankingRates, the most common reason Americans tap into their retirement savings early is to pay off debt or bills. The site surveyed approximately 2,000 people who have made early withdrawals from their retirement funds. Each person was asked, “What’s the main reason you tapped into your retirement savings early?” Each person then had five possible answers to choose from:
- To pay for a financial emergency
- To pay for higher education
- To pay for medical expenses/healthcare
- To pay off debt and/or bills
- To purchase a home
The survey revealed that the largest percentage answered that paying off debt and/or bills was the reason they tapped into their retirement savings early, at 43.99 percent. The complete breakdown was as follows:
- 99 percent: to pay off debt and/or bills
- 72 percent: to pay for a financial emergency (i.e. job loss)
- 66 percent: to pay for medical expenses/healthcare
- 36 percent: to purchase a home
- 27 percent: to pay for higher education
In addition, the reasons for using retirement savings early varied across age groups. Early withdrawals for medical expenses increase with age, while younger retirement savers tend to tap into their savings more often for emergencies.
Debt as the most common reason Americans tap into their retirement savings early is hardly surprising. According to The Motley Fool in February 2018, 80.9 percent of Baby Boomers, 79.9 percent of Gen Xers and 81.5 percent of millennials carried debt at that time. The types of debt included mortgages, student debt, credit card debt, auto debt and medical debt, with medical debt being the number one cause of personal bankruptcy filings in the United States.
If you are struggling with debt, however, dipping into your retirement savings should be your absolute last resort—at the very least, until you reach age 59.5 when you are no longer subject to early withdrawal penalties. Instead, opt for consolidating your higher-interest debt into a personal loan. Pay money back with fixed monthly payments and a set interest rate. It’s a better alternative to pulling money out of your retirement savings account where your money should be left alone to grow.
In general, avoid tapping into your retirement savings by cultivating an emergency fund for unexpected expenses. That way, you’ll have a designated pool of money to draw from in the event that a major expense presents itself.
For more retirement savings tips, continue to follow Ty J. Young Inc.’s Retirement You Earned blog! To learn how you can maximize the amount of income you receive in retirement, call our qualified Ty J. Young Inc. advisors today at 877-912-1919.