Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

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Saturday, February 22, 2014

One Big Retirement Mistake

Retir

It can be tempting to withdraw your retirement savings when you need cash, but this mistake can seriously jeopardize your future retirement income.

Besides taking a hit to your long-term savings, you will play income taxes and a 10% penalty for pulling the money out early.  Here’s a hypothetical from Fidelity: a 30-year-old who cashes out a retirement account worth $16,000 will owe around $3,200 in taxes and $1,600 in penalties.  His future retirement income will also drop an estimated $470 a month.

For those who don’t absolutely need the cash, their money is best left in their retirement account.  Not surprisingly, younger savers with lower incomes are more likely to withdraw.  44% of those aged 20 to 29 cashed out compared to only 26% of those aged 50 to 59.  50% of those earning $20,000 to $30,000 in 2013 cashed out compared to only 13% of those earning over $100,000. 

See Andrea Coombes, This Is a Retirement Saver’s Worst Mistake, MarketWatch, Feb. 13, 2014.

http://lawprofessors.typepad.com/trusts_estates_prof/2014/02/one-big-retirement-mistake.html

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