More People Raiding Retirement Funds

A new study indicates more Americans are raiding their retirement funds to cover their monthly bills right now.

Some people can borrow up to half of what they have in their 401(k) account at a low interest rate and without penalty if they pay it back in five years.

But local financial planners say it’s the worst option even if people do plan on repaying the loan.

Bill Tremont works for RBC Wealth Management in Watertown.

He has seen some interest in the option.

“They’re looking into a colder winter, for example, and saying, well, our heating costs are going to go up - how am I going to pay for that,” said Tremont.

But he warns that people are really just taking the money from themselves.

“It is relatively easy access for people to get a loan. A lot of times you don’t have to fill out any forms and there’s not a credit check and you think of it as a loan, but it’s actually not a loan because you’re really taking your own money on the account,” said Tremont.

and at the Freislich Group in Watertown, it’s an option Michele Freislich doesn’t even give her clients.

“I discourage it and in fact, they’re only given here if a person has a hardship. If they’re going to lose their home - things along that line,” said Freishlich.

Both financial advisors say in the end, even if you pay back the money and there are no penalties, you are still losing cash.

“You’re taking pre-tax dollars out, paying it back with after-tax money and then when you draw it out eventually when you retire, you’re paying the taxes again,” said Freishlich.

Advisors say it’s better to find another way to borrow money - whether it’s a savings account or a home equity loan - if you need to pay bills.

But if you still want more information about taking funds from your retirement plan, talk with your employer or a financial planner before borrowing from your future.

See Caroline Tucker’s report:

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