Keeping your 401K
Posted on October 6, 2005 4 Comments
This bankrate.com article appealed to me to because I can easily understand it, and because my only true investment is a 401K. Happy reading!
Don’t be dumb — don’t cash out your 401(k)
By Laura Bruce • Bankrate.com
We all do dumb things now and then. Sometimes it doesn’t really matter, but other times we find ourselves days, weeks or years later wishing we’d made a different decision. Cashing out a 401(k) before retirement will likely have you kicking yourself some time in the future.
A survey by Hewitt Associates, a human resources consulting firm, shows that 45 percent of employees take a cash distribution of their 401(k) plans when they leave a company. That’s long been a problem with twentysomethings as they job hop and cash out of small-balance 401(k)s. But the Hewitt survey uncovered a more-disturbing fact — 42 percent of workers age 40-49 take the money and run. How stupid is that?
They’re not cashing out paltry, insignificant amounts, either. Nearly one-third of employees with balances between $10,000 and $20,000 say, “So long, 401(k); show me the money!”
“These people are serial consumers of their 401(k),” says Lori Lucas, director of participant research at Hewitt. “It was somewhat surprising to see people age 40-49 cashing out. It’s surprising to see people closing in on retirement who aren’t preserving their wealth.
“People in their 40s may think they have balances that aren’t worth preserving. That’s not a good way to think. Even in your 40s there’s still plenty of time for small balances to grow much bigger by retirement. They may have felt the need to use the money for other reasons. Maybe they left one job and didn’t have another to go to right away. But some people look at it as a bit of a windfall and use it to buy those things they’ve wanted — like a big screen TV.”
Serial consumers of 401(k)s have plenty of opportunities to break the piggy bank. The federal Bureau of Labor Statistics says the median number of years that all workers have been with their current employer is four. That number is referred to as “tenure” by the bureau. The median tenure of workers age 25-34 is 2.9 years and 9.6 years for workers age 55-64.
Category: Money
Tags: Retirement
Comments
4 Responses to “Keeping your 401K”
Leave a Reply
About the Author
Archives
Categories
Tags
October 8th, 2005 @ 8:13 am
the sad thing is that most people aren’t taught fiscal responsibility nor do they have an financial knowledge.
Not only do i have a 401k from my work thats only stocks and bonds, i have a separate 401k thats only used for investing in Real Estate. check out my blog.
October 9th, 2005 @ 12:56 pm
It is certainly an unfortunate move they will regret later in life. The same goes for those who can get matches on their 401k from the company, but choose not to contribute. Free money doesn’t get any easier than that.
October 14th, 2005 @ 9:23 pm
Ugh. Why can’t people just leave that money alone. I suppose it’s because many people are living in a house of cards. One bad move and the whole thing caves in on them.
Emergency funds really help mitigate having to tap your 401K. It’s too bad more people don’t have them. In my opinion, they would even be better getting a home equity loan than they would tapping the 401K. At least that way, they would have to pay it back and not put their future at as much risk…..
Hazzard
Everybody Loves Your Money
November 8th, 2005 @ 4:08 pm
Something you might want to also consider is a Roth 401(K). I did an article on them at: http://www.personalfinanceweekly.com/archives/retirement/401k/index.html
Best of luck!