From the “bad idea” department

More than 25 percent of Americans raiding 401(k)s to pay bills

That’s the headline from an article in the Arizona Daily Star.

U.S. workers are tapping into nearly a quarter of the $293 billion placed into their retirement savings each year to pay for mortgages, credit cards and other debts, according to a report from financial advisory firm HelloWallet. Those in their 40s are the most frequent raiders, with about one-third using their 401(k)s to pay current bills.

Why is this a really, really bad idea?  First of all, dipping into your retirement account before 59 1/2 means that you not only pay income tax but also a 10% penalty on top of that often netting you about 60 cents on the dollar you take out.

The second reason it’s a bad idea is that it shows that you lack the discipline to budget properly.  There may be extreme cases where dipping into your 401(k) is the only option, but those are rare. 

The third reason for leaving the money for actual retirement is that at some point you will be too old or disabled to work.  At that point you are at the mercy of government programs which are themselves in a financially precarious situations.  It is always a bad idea to leave yourself vulnerable and destitute in your old age.

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