For decades, there’s been a push for individuals to contribute to retirement plans and Congress has even passed rules to implement automatic contributions in 401Ks. However, in recent years, early distributions from retirement plans have reached an all-time high as people find themselves in need of money for a variety of reasons including the increasing costs of living.
Most people know the importance of saving for retirement, butthere may be times where it’s more important to delay retirement savings. When I was growing up, I was always taught to first build up an emergency fund and extra savings for current needs. When Kristin and I first got married, we temporarily stopped saving for retirement in order to save for a house down payment. Even recently, we have temporarily foregone retirement savings again to build up our savings for college tuitions for our three children.
While saving for retirement is important, I do not recommend sacrificing current needs and short-to-mid term goals to build up retirement savings.
Even with the best planning, life is full of the unexpected.To help when deciding whether to take an early withdrawal, here are some things to consider:
- Is this for a need, such as caring for an aging parent or lost of job? Or is it for a want, such as remodeling a kitchen?
- Can this be delayed or are there other options for covering the expense?
- Are you aware of and comfortable with the potential tax liability and early withdrawal penalties?
- Does the benefit of why you’re withdrawing the money outweigh the taxes and penalties?
If you’re faced with a situation such as this, please call so we can discuss the various considerations and options for you to make an informed decision.