Financial Loss- Five Reasons to Resist the Urge to Raid Your Retirement Funds

Leaving the Nest Egg Alone — Five Reasons to Resist the Urge to Raid Your Retirement Funds

After several months of sour economic news, many Americans are feeling the real effects of the downturn. Even if you are fortunate enough to have avoided the wave of home foreclosures, your home may still have lost a significant portion of its market value over the last couple years. Unemployment rates continue to rise as many companies are cutting costs through layoffs, while other companies are issuing mandatory furloughs requiring employees to take unpaid leave. Individuals and families are getting squeezed on the expense side of the equation as well, with spiking gasoline prices hitting budgets hard and rippling through the economy in the form of higher prices for consumer goods.

When adhering to a budget system isn't enough to make ends meet, there is a real temptation to tap into other long-term savings, like your qualified retirement plan. Sure, the plan balance has fallen in recent months, but it may still be the account with the largest balance in your savings portfolio.

While it is easy to view your retirement nest egg as a means to cover current living expenses or pay off other debt—either through a loan or by taking a distribution—resisting this urge will usually prove to be the prudent course and in your long-term best interests. Most experts believe that pulling money from your retirement savings account should be viewed as an absolute last resort. Need specifics as to why? Here are five solid arguments against tapping into your qualified retirement plan account.

Early distributions result in taxes and penalties. Retirement accounts have specific rules designed to ensure they are used for their intended purpose. Withdrawing before you retire? You'll pay additional taxes and penalties that further reduce your available funds. Why let Uncle Sam have any more than he's entitled to?
You have other loan sources. Chances are, you can explore a variety of other options before borrowing from your plan. Mortgage trouble? Contact your mortgage banker and explain your situation. Many times, a bank will prefer to work with a homeowner to restructure or refinance a loan instead of going through a lengthy and expensive foreclosure process.
Loans have their limits. Some job-related retirement savings plans offer a loan provision where you can borrow against the balance in the account. However, many of these loans have five-year terms where the loan must be paid in full. And if you leave your job for any reason during the loan period, in most cases you must pay the loan in full or it becomes a taxable distribution.
This is your retirement money. Using these funds for any other reason defeats its original purpose: building resources on which you can live when you are no longer working. Undermining the original goal may mean you need to work additional years, or it could lead to a retirement that is less comfortable than you originally planned.
Borrowed money isn't working for you as invested money would. Any money you pull from your retirement account doesn't have a chance to earn interest or fund growth. This is a long-term savings vehicle. Slow and steady is the name of the game.

Out of a job? Tap into Federal and State resources that can help you with job searches, resume writing, training options or information on how to start your own business. You may also want to contact a tax professional to inquire about certain deductions for which you may qualify while unemployed. In the meantime, look to your other short-term savings and rein in unnecessary expenses until you find employment.

Transamerica Retirement Management, Inc. is a marketing unit of Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company. Securities and investment advisory services are offered through InterSecurities, Inc. (ISI), a member of FINRA, SIPC and Registered Investment Advisor. Insurance products are underwritten by the insurers and offered through InterSecurities Insurance Agency, Inc., which is licensed in most states, and agents associated with ISI. Diversified Investment Advisors, Inc. provides recordkeeping and general administration for employer sponsored defined contribution plans. All companies named herein are AEGON companies. • Not NCUA/NCUSIF or federally insured • No credit union guarantee • May lose principal. None of the AEGON companies named are affiliated with any credit union.