Don’t Let Unemployment Ruin Your Retirement

With the staggering number of job loss over the last few years, there has been a rise in withdrawals of people’s 401k retirement accounts. Individuals who experienced a financial crisis when their job was gone have turned to their retirement savings to make ends meet, without really understanding the implications of their actions. In fact, almost half of the hundreds of thousands of people’s whose job status changed, took money out of their 401k accounts. They were also subjected to penalties and taxes, reducing the amount of money they ultimately had saved to that point.

Quick Cash or Uninformed Reaction?

Withdrawing money from your 401k account before you are actually retired is one of the worst moves you can make in your personal finance life. A good majority of people who take out the money truly do not understand what a 401k account’s purpose is. Many still consider it to be extra money for when they need to make a big purchase like buying a new car or paying for college. Some think the larger sum of money will be a good holdover until the next job comes along.

However, most fail to think ahead about retirement age and what it will take to allow you to retire and survive. This is especially true of the younger generation who dismiss getting old or the realities of how much it will cost to live after retirement 40-50 years down the road.

Establish Other Funds
For some who have already lost their jobs it may seem like a moot point, but starting an emergency savings account that encompasses 6-12 months worth of living expenses should be a priority in your overall financial plan. Stretching money can be difficult but start somewhere – even with $20 a month. Deposit that into a separate savings account and leave it alone. Let it build up until you need it. This way you have options and a backup plan that doesn’t involve your retirement funds.

What To Do With 401k During a Job Loss
Even if you lose a job or make a job change, you can continue to save for the golden years. If you account is over $5,000, you can leave it right where it is. If it’s less than $5k, you can roll it over into an IRA account or you can make arrangements to have the money moved over into the plan offered by your new employers. Whatever you do, keep the money intact and continue to contribute to the 401k fund. As prices for everything, especially medical care and living expenses, continue to rise, a comfortable retirement will likely cost a lot of money. Use these working years to save and save smart.